Frumar v The Owners of Strata Plan 36957

CATCHWORDS: Costs - assessment by costs assessor - review by costs review panel - requirement to give reasons for determination - statements that amounts of profit costs were fair and reasonable - whether adequate reasons - dispute whether cross-claim costs within order - whether proper view taken of order - whether adequate reasons for inclusion of cross-claim costs in assessment - consideration of requirement of reasons - must be sufficient to enable meaningful exercise of right of appeal.

LEGISLATION CITED: Legal Profession Act 1987; Legal Profession Amendment (Costs Assessment) Act 1998;

Attorney-General of New South Wales v Kennedy Miller Television Pty Ltd (1998) 43 NSWLR 729; Beale v Government Insurance Office of New South Wales (1997) 48 NSWLR 430; Cachia v Colaco [2004] NSWSC 1043; CASES CITED: Freeman v McNally [2003] NSWSC 780; Kennedy Miller Television Pty Ltd v Lancken (Sperling J, 1 August 1997, unreported); Mifsud v Campbell (1991) 21 NSWLR 725; Soulemezis v Dudley (Holdings) Pty Ltd (1987) 10 NSWLR 247.

PARTIES: Geoffrey Craig Frumar - Claimant The Owners of Strata Plan 36957 - Opponent

COUNSEL: G A Sirtes - Claimant R G Gambi - Opponent

SOLICITORS: Geoffrey C Frumar & Associates - Claimant Ebsworth & Ebsworth - Opponent

LOWER COURT JURISDICTION: Supreme Court

LOWER COURT DATE OF DECISION: 4 April 2006 & 2 May 2006 (Costs)

LOWER COURT MEDIUM NEUTRAL CITATION: Frumar v The Owners of Strata Plan 36956 [sic] [2006] NSWSC 224 and Associate Justice Harrison, 2 May 2006, unreported.

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40248/06 SC 14177/05

BEAZLEY JA GILES JA IPP JA

Tuesday 17 October 2006 FRUMAR v THE OWNERS OF STRATA PLAN 36957 Judgment 1 BEAZLEY JA: I agree with Giles JA. 2 GILES JA: The claimant was the unsuccessful plaintiff in proceedings in the District Court, and was ordered to pay the opponent's costs. He abandoned an attempted appeal, and was again ordered to pay the opponent's costs. 3 The opponent's costs were assessed by a costs assessor, and on review +by a panel constituted by two costs assessors, pursuant to Pt 11 Div 6 of the Legal Profession Act 1987 ("the Act"). The claimant appealed to the Supreme Court against the decision of the panel. His appeal was heard by Harrison AsJ, who dismissed, it with costs against the claimant in part on an indemnity basis by reason of a Calderbank letter. 4 The claimant applied for leave to appeal to this Court from the decision of Harrison AsJ. The application was heard on full submissions so that, if leave to appeal were granted, the appeal could be decided without a further hearing.

The District Court proceedings 5 In April 1999 the claimant brought proceedings against Yawz Pty Ltd ("Yawz"), which provided security services for the building in which he conducted his practice as a solicitor, alleging negligence in the provision of the services and in failure to warn of security breaches whereby money and valuable property had been stolen from his offices. In December 2000 Yawz cross-claimed against the opponent, in whose building the offices were situated, alleging that any loss suffered by the claimant had been caused or contributed to by its failure to take appropriate action although on notice of a defective security system. In March 2001 the claimant joined the opponent as second defendant, alleging negligence in failing to ensure that Yawz provided its security services and in failing to make alternative arrangements for security services or to warn that there would not be adequate security in the building. The opponent cross-claimed in turn against Yawz. 6 The hearing in the District Court was lengthy. The claimant's case at the trial was that each of the defendants had been negligent in failing to warn him that there would not be adequate security services at the material time, and that if he had been warned he would have removed the money and property from his offices and would not have suffered loss. In reasons published on 3 December 2002 Coorey DCJ held that each of the defendants had been negligent, but his Honour was not satisfied that the claimant had proved causation. His Honour gave judgment for the defendants and ordered, "The plaintiff is to pay the defendants [sic] costs". 7 His Honour did not make orders in relation to the cross-claims, which appear to have fallen away in the conduct of the hearing when the defendants made common cause in challenging causation. Yawz and the opponent subsequently filed consent orders for dismissal of the cross-claims between them on the basis that each would pay its own costs of the cross-claims.

The attempted appeal 8 The claimant filed a holding appeal in this Court. He did not file a notice of appeal within time, and applied for an extension of time within which to do so. Shortly before the hearing of that application he indicated that he would not proceed with it. On 12 May 2003 orders were made that the application be dismissed and the claimant pay the opponents' costs.

The costs assessments 9 In June 2004 the opponent delivered a bill of costs and applied for referral for assessment. The bill of costs began with a narrative of the proceedings and a statement as to the partner, solicitors and clerks engaged therein and their various hourly rates. In some 531 items it described chronologically work done by the relevant person, generally on a time basis and applying the hourly rate of the partner, solicitor or clerk to arrive at a figure. The charges for these profit costs totalled $71,237.50. Further profit costs in relation to the assessment of costs were itemised, totalling $1,850. With GST where applicable, the claimed profit costs were $79,492.20. 10 The bill of costs then set out disbursements in a further 167 items. The total of the profit costs and disbursements was $156,594.69. 11 The items in the bill of costs were for work done and disbursements paid from 19 January 2000, over a year prior to the joinder of the claimant as second defendant, until the conclusion of the proceedings in the Court of Appeal. 12 The claimant lodged lengthy objections and submissions. The issues in the application for leave to appeal were more confined than at the times of the assessments, or even at the time of the appeal to the Supreme Court, and the objections are presently material only in part. I will refer to them in due course. 13 On 25 November 2004 the costs assessor issued a certificate setting out his determination of a fair and reasonable amount of costs. He assessed profit costs at $65,000 and disbursements at $60,955.54, together with a filing fee determining the costs at $127,521.49. The certificate was accompanied by reasons for the determination, to which I will return. 14 On or about 9 December 2004 the claimant applied for review of the costs assessor's determination. He set out seventeen lengthy grounds for review, again only some being presently material. By s 208KC of the Act, the panel to which the application was referred was to determine it "in the manner that a costs assessor would be required to determine an application for costs assessment", but unless the panel determined otherwise was to do so on the evidence received by the costs assessor and without receiving further submissions. 15 The panel issued its determination on 31 August 2005. It set aside the determination of the costs assessor, and determined the fair and reasonable costs at $122,802.67. The profit costs were assessed at $63,833 and one item of the disbursements was reduced by $2,649.20; the explanation for the mathematical discrepancy is not immediately obvious. The panel's determination was accompanied by reasons addressed to each of the grounds for review, again presently material only in part. I will refer to them also in due course.

The appeal to the Supreme Court 16 Section 208L of the Act gave a right of appeal to a party who was dissatisfied with a decision of a costs assessor "as to a matter of law arising in the proceedings to determine the application". By s 208M(1), a party to an application "relating to a bill of costs" could seek leave of the Supreme Court to appeal to the Court "against the determination of the application made by a costs assessor", and by s 208M(2) a party to an application "relating to costs payable as a result of an order made by a court or tribunal" could seek leave of the court or tribunal to appeal to the court or tribunal "against the determination of the application made by a costs assessor". By s 208KI, these references to a costs assessor were also references to a panel. In effect, there was an appeal as of right on law and an appeal by leave on fact. 17 In his appeal the claimant claimed orders in reliance on s 208L, in the alternative leave and orders in reliance on s 208M. It does not seem to have been recognised in the hearing before Harrison AsJ that his reliance on s 208M was in large part misplaced. The Act referred in a number of places to assessment of "a bill of costs". That was defined in s 173(1) as a bill of costs for providing legal services and including a memorandum of fees, and was the record of the costs claimed by a legal practitioner from the client. Section 208M(1) was not available to the claimant. He fell within s 208M(2), as a party to the opponent's application flowing from the orders for costs made in the District Court and the Court of Appeal. He could appeal by leave to the District Court as to the costs payable as a result of the order in the District Court, and by leave to the Supreme Court as to the costs payable as a result of the order in the Court of Appeal. 18 Be that as it may, the grounds of appeal all asserted that the panel had "erred in law". The errors of law were -

(a) failing to issue a statement of reasons "compliant with" Reg 68(1) of the Legal Profession Regulation 2002 or to give any or any adequate reasons;

(b) failing to hold that the claimant was not liable to pay "the Defendant's costs of cross-claims issued by the Defendant" in the District Court proceedings; and

(c) failing to consider whether or not it was reasonable to carry out the work to which the costs related, as required by s 208F(1)(a) of the Act. 19 The learned Associate Justice gave judgment on 4 April 2006. The last of these errors of law was not expressly dealt with by her Honour. It may not have been maintained, and was not raised in the application to this Court; nothing further need be said of it. 20 Before her Honour the claimant contended that the panel's reasons were insufficient in relation to both profit costs and disbursements. In the application for leave to appeal his submissions addressed only profit costs. In the manner to which I will come, her Honour considered that the reasons were adequate. Also in the manner to which I will come, she considered that there was no error of law in relation to the cross-claim costs. 21 Harrison AsJ concluded her judgment - "31. None of the issues raised, named, firstly, the assessment of disbursements, or secondly, the calculation of professional fees and thirdly, the cross-claim costs merit leave being granted under s 208M of the Act. 32. Leave to appeal is refused. The appeal is dismissed. The decision of the Costs Review Panel dated 31 August is affirmed. The summons is dismissed." 22 On 2 May 2006 her Honour heard an application by the opponent for a special costs order, on the basis of a number of offers by Calderbank letters. The last of the offers, made on 15 March 2006, was to accept $111,000. Her Honour considered that the claimant acted unreasonably in rejecting "these offers", saying that the grounds of appeal were very weak and "I do not know what else the defendants [sic] could do to try and settle the matter". She ordered that the costs from 14 March 2006 be on an indemnity basis.

Leave to appeal 23 The claimant submitted that the learned Associate Justice erred, in summary, in -

(a) holding that the appeal to the Supreme Court was an appeal requiring leave pursuant to s 208M of the Act;

(b) holding that the panel had given adequate reasons for its determination in relation to profit costs;

(c) holding that the panel had not erred in law in relation to cross-claim costs, and in particular so holding on the basis of a finding of fact for which there was no evidence; and

(d) holding that he had acted unreasonably in rejecting the offers in the Calderbank letters. 24 As I explain hereafter, I do not think that there is substance in (a), and (d) falls away. 25 The amount potentially at stake under (b) and (c) can not be arrived at with any precision. The claimant's objections as to profit costs, on his case disposed of without adequate reasons, were as to costs of the order of $25,000. The cross-claim costs in question were of the order of $30,000. These two amounts overlapped. They are not inconsiderable sums in the context of unexceptional litigation. 26 As I also explain hereafter, I consider that (b) should be accepted, and it is appropriate that there be appellate consideration of the extent of the reasons required of a costs assessor and a panel: the Act has now been replaced by the Legal Profession Act 2004, but the regime is relevantly continued as to reasons (1987 ss 208JAA, 208KG; 2004 ss 370, 380; and with similar regulations). I also consider that (c) should be accepted, and that the claimant's complaint as to cross-claim costs has not been properly addressed or decided. This is of less general significance, but the claimant is entitled to have proper attention to his objection relating to a not inconsiderable sum. 27 In all the circumstances, in my opinion leave to appeal should be granted. For convenience, I will continue to refer to the parties as the claimant and opponent.

Submission (a): error in relation to leave 28 The claimant submitted that the principal ground of appeal to the Supreme Court was failure to provide adequate reasons, which was error of law, and that the grounds of appeal were all expressed as errors of law; he submitted that in paras [31] and [32] set out above the learned Associate Justice erroneously treated the appeal as an appeal requiring leave, and wrongly intruded into her decision a discretionary hurdle at which he fell. 29 I do not think that this is a correct understanding of her Honour's judgment. She specifically recited the claimant's reliance on s 208L of the Act, alternatively s 208M, and in reciting the grounds of appeal included their assertion of errors of law. She noted in her [9] that there could be appeal in relation to a matter of law, referring to s 208L, and immediately turned to whether adequate reasons had been given. When she considered "the cross-claim issue" in [17] and [18] her concluding words were, "There is no error of law under s 208L of the Act". It is plain, in my view, that her Honour's decision addressed error of law without intrusion of a discretionary leave requirement. 30 Her Honour's [31] and the refusal of leave in [32] are readily understandable. The appeal to the Supreme Court relied in the alternative on s 208M of the Act, with its leave requirement. That the reliance was in part misplaced did not emerge before her Honour. The claimant would have been taken to have asked that leave be granted so far as necessary - indeed, one of the proposed grounds of appeal to this Court was that her Honour erred in failing to grant leave pursuant to s 208M if leave was necessary. In my opinion, her Honour was saying for completeness that, so far as the claimants' submissions went beyond dissatisfaction as to a matter of law, a case for the grant of leave had not been made out. It should be said that the claimants' submissions in this Court did not address error in refusing leave.

Submission (b): error in relation to reasons 31 The claimant confined his submissions in this Court to profit costs. He said that the panel did not give any reasons explaining the basis upon which professional costs were assessed, but simply made a "declarative statement" as to the amount of costs it considered fair and reasonable; he submitted that the learned Associate Justice was in error in regarding this as sufficient. 32 Amendments to the Act by the Legal Profession Reform Act 1993 replaced taxation of costs by court officers with assessment of costs by costs assessors. There can conveniently be repeated the explanations extracted by Priestley JA in Attorney-General of New South Wales v Kennedy Miller Television Pty Ltd (1998) 43 NSWLR 729 at 731 - "The Attorney-General of the day, Mr Hannaford, when the proposed legislation was read a second time in the Legislative Council, listed a number of defects in the existing system of taxation of costs. It was said to be 'overly formal, legalistic and complex': Hansard, 16 September 1993 at 3277. Matters to which particular attention was drawn were that the court officers who did the work of taxing costs were often transitory and thus not always particularly knowledgeable, the process was frequently an adversarial one, it took up far too much time and could also be costly. The Attorney-General said that what was needed was 'a faster, easier and cheaper system of review of bills of costs' (ibid at 3277). He continued: 'The Legal Fees and Costs Board suggested that the system of taxation be replaced by a system of assessment of costs by practitioners well versed in the running of a legal practice. Such persons would be part-time assessors appointed by the Supreme Court. The Chief Justice has indicated his support for this proposal. In commenting on the recommendation of the legal fees and costs board the Chief Justice noted "I would support the proposal that, subject to appropriate rights of appeal to a judge, taxation of costs be undertaken in the first instance by assessors taken from the ranks of legal practitioners, rather than by court officials who are public servants. I think it is fair to say that legal practitioners would be far more in touch with current rates payable in the market for legal services'.'

Along with the new system of working out what amounts were to be paid pursuant to court orders following litigation that one party pay another's costs, the substance of the law was also changed. The Attorney-General explained the reason for this (ibid at 3278): 'The current system of taxation of party-party costs creates injustice and confusion. It means that even though a successful litigant is awarded costs against the other party he or she may be out of pocket for a significant amount. This is because party-party costs are those 'necessary and proper' while solicitor-client costs "are all costs save those which are of an unreasonable amount or have been unreasonably incurred". It is proposed to abolish this distinction and that, subject to the judicial discretion to vary the basis of awarding costs, the criterion for awarding costs should be those reasonably incurred. The client would then recover the full costs which he or she is required to pay other than any unreasonable costs. There is significant support for this proposal. The current system of taxation has been criticised by a number of judges over recent years.'

The new system of assessment of costs came into operation on 1 July 1994. It was amended by Act No 95 of 1996, which was assented to on 26 November 1996." 33 At these times the legislation did not in terms require that a costs assessor should give reasons for his assessment. In Attorney-General of New South Wales v Kennedy Miller Television Pty Ltd it was held, affirming the decision of Sperling J in Kennedy Miller Television Pty Ltd v Lancken (1 August 1997, unreported), that a costs assessor was obliged to provide reasons for his determination. Sperling J had held that the costs assessor was 'bound to give reasons for his determination, specifying the items which have been reduced by what amount and for what reason in each instance". 34 Priestley JA, with whom Handley and Powell JJA agreed, considered that the rights of appeal under ss 208L and 208M "point very powerfully" towards an implied statutory duty to provide reasons (at 734-5). His Honour's reasons included (at 735-6) - "First, Mr Hannaford's Second Reading Speech relied upon the support of the Chief Justice for the proposed new system. Mr Hannaford properly made known to the Legislative Council that that support was 'subject to appropriate rights of appeal to a judge'. On that basis the Chief Justice's support was for the undertaking of the assessment of costs by the new style assessors 'in the first instance'.

Secondly, simply looking at s 208L and s 208M without reference to the Second Reading Speech, it seems very clear that unless the costs assessors are to be obliged to give reasons for their determinations, the appeal provisions are likely to be, although not completely useless, so close to it as to negate the clear intent that in regard to questions of law at any rate a party dissatisfied with the costs assessor's decision should have a real and not largely illusory right of appeal.

Thirdly, so it seems to me, when what was said in the Legislative Council concerning 'appropriate rights of appeal to a judge' is taken into account, the conclusion becomes even clearer.

Arguments from practicality were raised against this view of the legislation. It was said that the primary purposes of the new system, namely to be "faster, easier and cheaper" than the old, would be blocked, or at least hampered, if the obligation to give reasons were upheld.

Sperling J had dealt with this argument. He said (at 35-36): 'It does not seem to me that what I have proposed would be particularly onerous or that it would materially increase the cost of the process. It may be preferable for assessors to anticipate the possibility of a request for reasons when processing the bill. In the ordinary course, the assessor would need to note against any item reduced the amount of the reduction or the reduced amount in order to be able to tally up the result. It would be easy enough to record the reason for the reduction in each instance at the same time. In each case, the reason must be readily to mind. Otherwise, the item would not have been reduced. In most instances, a word or two would suffice. A code could be devised for recurring reasons. I doubt that this would add much to the cost of the assessment. It would, in my view, be a reasonable incident of the assessment and chargeable as part of the assessment. If a request for reasons were made at a later time, little extra work would be required to produce the reasons in suitable form'.' 35 His Honour noted (at 736) the submissions that the obligation to provide reasons would cause "significant problems of time and expense" and that "judgments were involved which an assessor would make in light of experience sometimes very hard to put in words without intricate and lengthy explanation, which would cause cost and delay". He explained difficulty in assessing the reality of the submissions, and said (at 737) of a statement provided to the Court that it - " … reinforces rather than diminishes the impression I had upon reading Sperling J's reasons, that his suggestions were practical, and need not result in costs assessments taking significantly longer to do, or costing significantly more. Should I be wrong about this, I would still think the statutory implication clear, for the reasons earlier given. The idea that a costs assessor can, as in this case, reduce a bill of more than $600,000 by more than $200,000, without giving any reason, is most unattractive." 36 His Honour added - "One thing that both the submissions at the hearing and those contained in the statement have made plain to me is that there is scope for policy guidelines to become established governing the way in which reasons are provided. Sperling J's suggestions already go some distance towards that. Some matters mentioned in the statement indicate that something more detailed may be required in the interests of keeping costs and time wasting to a minimum. Whether or not that is so does not arise for decision in the present appeal, where the question is the general one in respect of which leave was granted, is there an obligation upon costs assessors to give reasons for their determinations? As I have already said, my opinion is that the answer is clearly yes." 37 Apparently as a result of Priestley JA's reference to policy guidelines, the amendments to the Act by the Legal Profession Amendment (Costs Assessment) Act 1998 included ss 208JAA (as to costs assessors) and 208KG (as to panels) - " 208JAA Reasons for determination

(1) A costs assessor must ensure that a certificate issued under section 208J that sets out his or her determination is accompanied by: (a) a statement of the reasons for the costs assessor's determination, and

(b) such supplementary information as may be required by the regulations.

(2) The statement of reasons must be given in accordance with the regulations." " 208KG Reasons for determination

(1) The panel must ensure that a certificate issued under section 208KF that sets out the determination of the panel is accompanied by:

(a) a statement of the reasons for the panel's determination, and

(b) such supplementary information, in relation to the determination, as may be required by the regulations.

(2) The statement of reasons must be given in accordance with the regulations." 38 The Legal Profession Amendment (Costs Assessment) Regulation 1999 provided in reg 26IJ for the content of the statements of reasons of a costs assessor or a panel. At the time material to these proceedings the Legal Profession Regulation 2002 ("the Regulation") made such provision in regs 61 and 68; the contents were similar, and it is sufficient to set out from reg 68 - "(1) A statement of reasons for a costs review panel's determination that is required by s 208KG of the Act to accompany a certificate issued under section 208KF of the Act must be accompanied by the following information: (a) the total amount of costs for providing legal services determined to be fair and reasonable,

(b) the total amount of disbursements determined to be fair and reasonable, (c) each disbursement varied by the determination, (d) in respect of any disputed costs, an explanation of: (i) the basis on which the costs were assessed, and

(ii) how the submissions made by the parties were dealt with, (e) … (2) A statement of reasons to which this clause applies may be accompanied by such further information as the costs review panel concerned considers is necessary to clarify the review of a costs assessor's determination." 39 The references to disputed costs and to submissions made by the parties call for further mention. 40 As I have indicated, the Act referred to assessment of "a bill of costs", being the record of the costs claimed by a legal practitioner from the client. In relation to assessment of costs payable as a result of an order made by a court or tribunal there was no like reference to a document recording the costs claimed by the beneficiary of the order. The Regulation provided in reg 45 for the particulars in a bill of costs, not necessarily requiring an itemised bill of the kind delivered by the opponent, and by the prescribed form for application for assessment of party/party costs (reg 55, Form 3) for information which also could be conveyed without an itemised bill such as that delivered by the opponent. The burdened party could lodge an objection to the application (reg 56), but nothing required that the objection be a seriatim response to a bill of costs. By s 208 of the Act a costs assessor had to give those concerned a reasonable opportunity to make written submissions. 41 No doubt as a matter of practice itemised bills of costs were usually employed, but there could have been application to assess costs payable under a court order without an itemised bill of costs. The objection and submissions could have been general, not addressed to each item or even class of items. Even if no objection was lodged, it was still necessary for the costs assessor to determine the reasonable costs. In some cases, including when an itemised bill of costs was delivered, it might not be easy to isolate what were disputed costs in order to give the explanation in reg 68(1)(d). But that had to be done, and the requirement of reasons had to accommodate what could be obscure dispute. 42 The submissions did not address whether the reasons required by s 208KG of the Act were only those to be given in accordance with the regulations. Proper compliance with reg 68(1) would be likely to fulfil the obligation under s 208KG, but would not necessarily do so; I incline to the view that the Regulation expressed a minimum extent of the reasons, with the possibility of a greater necessary extent if the circumstances so required. But I do not think that in the present case it matters, and it is not necessary to come to a conclusion. 43 The extent of the obligation, whether by explication of reg 68(1) or by giving content to s 208KG, is informed by the general law concerning the duty of judicial officers to give reasons for their decisions discussed in cases such as Soulemezis v Dudley (Holdings) Pty Ltd (1987) 10 NSWLR 247, Mifsud v Campbell (1991) 21 NSWLR 725 and Beale v Government Insurance Office of New South Wales (1997) 48 NSWLR 430. The extent of a judicial officer's duty depends on the circumstances. Whether or not a costs assessor and a panel are acting administratively or judicially, which was left open in Attorney-General of New South Wales v Kennedy Miller Television Pty Ltd, the extent of their duties must take into account the different nature of their task and their roles as legal practitioners bringing to bear their experience and judgment in evaluation of what work was reasonable and what is a fair and reasonable amount of costs; but it is also moulded by the basis for the obligation to give reasons in Attorney-General of New South Wales v Kennedy Miller Television Pty Ltd, thereafter taken up by the legislature. 44 The reasons must be such that a party dissatisfied with the costs assessor's or panel's determination "should have a real and not largely illusory right of appeal". These words in Attorney-General of New South Wales v Kennedy Miller Television Pty Ltd at 735 were qualified by "in regard to questions of law at least", but in my respectful opinion they apply equally to questions of fact: questions of whether the time engaged or an hourly rate are reasonable can be very important, and although subject to leave s 208M permitted an appeal on those questions. The filter for an appeal as to fact is the Court's decision as to leave, not the cost assessor's or panel's expression of reasons, and whether leave should be granted can only be decided if it is known why the determination was made. 45 The delay and expense of an excessively onerous obligation to provide reasons is material, particularly when assessment of costs by costs assessors was intended to provide a faster, easier and cheaper system. In my opinion, however, the observations of Meagher JA in Beale v Government Insurance Office of New South Wales at 444 are applicable; that the balancing act in considering the sufficiency of a statement of reasons "involves the adoption of, at the least, a minimum standard which places the parties in a position to understand why the decision was made sufficiently to allow them to exercise any right of appeal". 46 Against these considerations, I turn to the reasons in this case. 47 The opponent's bill of costs stated hourly rates for the supervising partner, for the solicitor having the conduct of the proceedings and for a number of solicitors and clerks assisting them. The items identified times for which the partner, the solicitor or the clerk were engaged on attendances, perusals and other tasks, with figures representing application of the relevant hourly rate. The total profit costs were arrived at by addition. In his objections the claimant took issue with a great many of the individual items, for a variety of reasons but including, for example, that the time was incorrect, that there was unnecessary attention to and time spent on the task, and that the attention at the level of the partner, solicitor or more senior of the solicitors or clerks was unnecessary. 48 In his reasons the costs assessor said - "1. Profit Costs I have received much information from the Respondent most of which misses the point of the assessment process. Costs assessment involves a process of assessment not of taxation. That process involves the assessor considering a bill and any objections or submissions and then using the assesors [sic] experience, determining a fee for the work done that reflects the criteria of the Legal Profession Act (fair and reasonable). It is not a process that requires or even invites the beneficiary of a costs order to prove each and every item of work performed. I understand from the mass of material that the Respondent has provided me that the Respondent makes the following complaints about the manner in which the work was done or the amount of the charges." 49 The costs assessor's reference to the criteria of the Act was clearly enough to s 208F, which relevantly provided - " 208F Assessment of costs - costs ordered by court or tribunal

(1) When dealing with an application relating to costs payable as a result of an order made by a court or a tribunal, the costs assessor must consider: (a) whether or not it was reasonable to carry out the work to which the costs relate, and

(b) what is a fair and reasonable amount of costs for the work concerned.

(1A) An assessment must be made in accordance with the operation of the rules of the relevant court or tribunal that made the order for costs.

(2) A costs assessor is to determine the costs payable as a result of the order by assessing the amount of the costs that, in his or her opinion, is a fair and reasonable amount.

(3) …" 50 The costs assessor then dealt with a number of complaints, including saying that it was appropriate in a matter such as that before him that six minute time units be used and that the hourly rates were reasonable for the type of matter and for practitioners of the experience of those who performed the work. He said, however, without elaboration - " Use of the 'litigation team'. I agree with the Respondent that there were a large number of lawyers and paralegals working on this file. At times the supervisor and meetings necessary to manage such a team has lead to charges that are on occasions not reasonable and I have made an adjustment to the professional costs accordingly. Some of the internal memos, meetings and overlap is not fair and reasonable. … Reporting to Client. This is work that is generally reasonably performed in such a matter. There are some excesses in this case and I have taken this into account in my final assessment of professional costs." 51 The costs assessor also said that in coming to his assessment he had taken into account the matters in s 208G of the Act; it provided - " 208G Additional matters to be considered by costs assessors in assessing costs ordered by court or tribunal

In assessing what is a fair and reasonable amount of costs, a costs assessor may have regard to any or all of the following matters:

(a) the skill, labour and responsibility displayed on the part of the barrister or solicitor responsible for the matter,

(b) the complexity, novelty or difficulty of the matter,

(c) the quality of the work done and whether the level of expertise was appropriate to the nature of the work done,

(d) the place where and circumstances in which the legal services were provided,

(e) the time within which the work was required to be done,

(f) the outcome of the matter." 52 The costs assessor concluded in relation to profit costs, again without elaboration - "This is a matter where I think that the best method of assessment is to assess an overall fee for professional costs. I assess that fee as $65,000.00 or about 215 hours at the partners [sic] hourly rate." 53 The claimant's grounds for review by the panel relevantly included - "(5) Failure and/or refusal by the Costs Assessor in compliance with both Regulation 61(2) of the Legal Profession Regulation 2002 and Section 208F(1) of the Legal Profession Act, 1987 to inform in his Statement of Reasons set out in his determination an explanation in respect of each item of costs disputed by the Applicant in his two (2) sets of objections and submissions of - (i) the basis which those disputed costs were assessed by the Costs Assessor and

(ii) the manner in which he dealt with the Applicant's objections and submissions relating to those disputed costs. (6) … (7) Failure and/or refusal of the Costs Assessor to make any adjustment to the professional costs sought to be recovered by the Respondent's Solicitors arising from his finding that a large number of lawyers and paralegals participated in the litigation with management of such a team leading on occasions to unreasonable charges in circumstances where various components of the litigation were delegated by the Respondent's Solicitors and the expenditure of time in billable hours charged by them gave rise to extraordinary costs which may be properly payable on a solicitor/client basis but should not have been allowable on a party/party basis.

(8) Failure and/or refusal of the Costs Assessor to make any adjustment to the professional costs sought to be recovered by the Respondent's Solicitors arising from his finding or determination that certain charges for supervision of and meetings with the large number of lawyers and paralegals were not reasonable. (9) … (10) Failure of the Costs Assessor in assessing the overall fee for professional costs at $65,000 'or about 215 hours at the partners hourly rate' to appreciate or recognise that the Bill of Costs revealed that the partner in the Office of the Solicitors for the Respondent supervising this matter did not have the daily care, carriage and conduct of this matter and was not responsible for incurring the bulk of the professional time expended in this matter yet, seemingly, his hourly rate forms the basis of the assessment of the professional costs but, in any event, from the limited material which was produced by the Respondent's Solicitors to the Applicant, with the exception of that partner, all other lawyers and paralegals who were involved with the litigation were charged-out to the Respondent at hourly rates less than the average hourly rate assessed by the Costs Assessor to be fair and reasonable." 54 The panel said as to these grounds - " Ground 5 . The Review Panel notes that the Cost Assessor informed the parties that the role of the Cost Assessor was to assess costs. The process was not a process of taxation. The Cost Assessor is obliged to assess the bill of costs as a whole ( Turner v Pride ). The Review Panel is satisfied that the Cost Assessor set out the basis for his determination in his reasons." … Grounds 7 & 8 . The Review Panel does not accept these grounds. The Cost Assessor agreed with the submissions made by the Review Applicant on this aspect and assessed the costs accordingly. … Ground 10 . The Review Panel accepts that the Cost Assessor refers to his assessment of the professional costs at $65,000.00 or about two hundred and fifteen hours (215) of the partners' hourly rates. Having regard to this ground the Review Panel conducted its own assessment and finds that in all the circumstances a fair and reasonable amount of costs would be the sum of $63,833.00." 55 The learned Associate Justice dealt with this matter in her reasons - "27. The plaintiff's counsel also submitted that the plaintiff, a solicitor, could not work out how the Review Panel assessed the professional costs, because, that if one examined the bill, the partner whose charge-out rate was allowed did not carry out the majority of the work. 28. In relation to hourly rates the Costs Assessor said: 'This is a matter where I think that the best method of assessment is to assess an overall fee for professional costs. I assess that fee as $65,000 or about 215 hours at the partner's hourly rate.' 29. The Review Panel said: 'The Review Panel accepts that the Cost Assessor refers to his assessment of the professional costs at $65,000.00 or about two hundred and fifteen hours (215) of the partners' hourly rates. Having regard to this ground the Review Panel conducted its own assessment and finds that in all the circumstances a fair and reasonable amount of costs would be the sum of $63,833.00'. 30. The Review Panel was to explain the basis upon which the professional costs were assessed. It did so. It is my view that the Review Panel provided adequate reasons." 56 The panel made its own assessment, which replaced that of the costs assessor, and for present purposes attention must be focussed on the adequacy of the panel's reasons. Something should first be said of the costs assessor's assessment. 57 The bill of costs attributed only about ten hours work to the partner; by far the greater work, about 73 per cent on a costs basis, was that of the solicitor having the conduct of the matter. The costs assessor was not saying that the partner had spent 215 hours attending to the proceedings; he seems to have been testing his overall fee of $65,000 against a yardstick of that level of legal services. How that could provide a valid comparison, when the partner did not provide the legal services and a variety of other solicitors and clerks with a variety of hourly rates provided the majority of the legal services, and when it would plainly not have been appropriate for the partner to have spent 215 hours attending to the proceedings, I have great difficulty in seeing. 58 The $65,000 was a round figure. It appears that the costs assessor did what he described in his first paragraph under the heading "Profit Costs"; he did not consider proof or otherwise of the items in the bill of costs, but from his experience determined a fee which he considered fair and reasonable. In doing so he accepted as reasonable hourly rates the various hourly rates in the bill of costs. But he did not accept that all the legal services in the bill of costs were reasonably provided, in the areas of supervision and internal memos and meetings and whatever was meant by "overlap" ("coordination work"), and of reporting to the client ("reporting work"). 59 It can not be seen from the costs assessor's reasons what work in items in the bill of costs, being co-ordination work or reporting work or perhaps other work, was thought by the costs assessor to have been unreasonably carried out. Indeed, it does not seem that the costs assessor identified that work and, applying the hourly rates, deducted an amount from the profit costs, whilst inferentially accepting that the rest of the itemised legal services had been reasonably provided. Rather, he seems to have begun again with his own assessment of an overall fee based on what he considered was reasonable work to be carried out. Since his assessment was less than the $79,492.20 in the bill of costs, and in the light of what he said about coordination work and reporting work, he did not accept that the whole of the work in the bill of costs was reasonably carried out. But it can not be seen what work the costs assessor thought was or was not reasonable work to be carried out, including by way of coordination work and reporting work, or its relationship to the work in the items in the bill of costs. 60 The panel's reasons do not make good these difficulties in the costs assessor's reasons. They add to them. The panel endorsed the costs assessor's reasons as setting out the basis for his determination, and his approach of assessing the bill of costs "as a whole" (under Ground 5), but in conducting its own assessment arrived at a relatively precise amount of $63,833 in lieu of the round figure. It can not be seen what work in the items in the bill of costs the panel thought was unreasonably carried out, or what work it thought was reasonable work to be carried out independently of the itemisation in the bill of costs and its relationship to the work in the items in the bill of costs. Maybe it accepted that the hourly rates were reasonable and applied them, but it did not say so: at least on the surface, in making its own assessment the panel could have applied different hourly rates. 61 The relatively precise amount suggests a calculation or an addition of items, but this is not explained. The assessment may or may not have been by adjustment of the bill of costs, but if it was the adjustments were not identified and if it was not there was no more than an end figure. The panel stated a figure as the result of its assessment and asserted that it was "in all the circumstances" a fair and reasonable amount of costs, but the content can not be seen. 62 In my opinion, this fell short of providing a statement of reasons for the panel's determination as required by s 208KG of the Act, and fell short of providing the explanation required by reg 68(1)(d). If either the claimant or the opponent wished to appeal to the Supreme Court, he or it could not do so when he or it did not know -

(a) whether the panel's assessment had been by taking the itemised bill of costs and allowing, disallowing or adjusting items, or by coming to its own view of work reasonable to be carried out;

(b) if the former, what items had been allowed, disallowed or adjusted and whether as to hourly rate or reasonable times or for some other reason; or

(c) if the latter, what work the panel thought reasonable and how it costed the carrying out of the work. 63 The claimant would need to know for appeal as to a matter of law pursuant to s 208L of the Act, but plainly also for appeal pursuant to s 208M. If the claimant had contemplated disputing the extent of unreasonable charging accepted by the costs assessor to have occurred in relation to coordination work and reporting work, how could he have done when he did not know what coordination work or reporting work had been excluded from the claim in the bill of costs, or what coordination work or reporting work the costs assessor had included in his own assessment as reasonable work to be carried out; or what the panel had done in these respects? How could he do so if he did not even know whether the panel had also accepted that there had been unreasonable charging in relation to coordination work and reporting work? The opponent also had an interest in the reasons, since it might have wanted to appeal against the cutting down of its costs, and it was equally in the dark. 64 The panel referred to Turner v Pride [1999] NSWSC 850 for assessment of the bill of costs as a whole. In that case Master Malpass (as his Honour then was) observed at [45] that the thrust of the costs assessor's reasoning process was "that the costs were grossly excessive and that the amount allowed was that which in his opinion was a fair and reasonable amount". The learned Master added, "He relied on inter alia his experience in reaching these views. This was a course open to him". I do not see in this any warrant for no more or little more than statement of the amount which in the opinion of a costs assessor was fair and reasonable. 65 In Freeman v McNally [2003] NSWSC 780 Master Malpass accepted that a statement of reasons complied with the Act and the Regulation where the costs assessor "proceeded to identify the nature of the items that had been the subject of a reduction and set out an expression of the reasons showing why the reduction had taken place" (at [14]); the expressions were sometimes loose but "[h]e was intending to say that there was a reduction because the claim was unreasonable in a relevant respect" (at [16]). In Cachia v Colaco [2004] NSWSC 1043 Burchett AJ said at [9] to the effect that the Master had correctly decided that a finding that an item was not fair and reasonable was sufficient. In those cases it appears that it could be seen what items in bills of costs were not fair and reasonable, and that the disallowances of items as not fair and reasonable were effectively explained. Each case must be considered for its own circumstances, but in Attorney-General of New South Wales v Kennedy Miller Television Pty Ltd Sperling J's description of "specifying the items which have been reduced by what amount and for what reason in each instance" was evidently accepted. It is a very different thing for a statement of reasons to do no more than assert as fair and reasonable an end amount. In the present case, the panel's reasons were inadequate. 66 The learned Associate Justice said in her [30], with respect only by way of assertion, that the panel had explained the basis upon which the profit costs were assessed. On the closer consideration of this application for leave to appeal, I am unable to agree; in my opinion, her Honour was in error in this respect.

Submission (c): error in relation to cross-claim costs 67 The claimant submitted that Harrison AsJ failed to appreciate and consider his complaint in this respect and erred in failing to uphold it, alternatively that she rejected it on a basis of which there was no evidence. 68 There was often confusion in the references to cross-claim costs. Yawz cross-claimed against the opponent, then the claimant was joined as second defendant, then the opponent cross-claimed against Yawz. The opponent incurred costs initially as cross-defendant, then as defendant and then as cross-claimant. The costs in question were at least the opponent's costs as cross-defendant to the cross-claim brought by Yawz, but may also have been its costs as cross-claimant against Yawz. 69 The claimants' initial objections to the bill of costs included that - " … none of the professional work undertaken by the Second Defendant's Solicitors from January 2000 until March 2001 should be the subject of this Bill of Costs as, during that period of time, the Second Defendant had been joined in the litigation by the (First) Defendant by way of a Cross Claim … ". 70 The objections further included that the disbursements for counsel's fees for the period prior to 20 March 2001 were not recoverable because - " … only subsequent to which point did the Plaintiff join the Second Defendant but prior to which the First Defendant had raised a Cross Claim against the Second Defendant in its capacity at that time solely as a Cross Defendant … ". 71 This did not question any item in the bill of costs for work done after the joinder of the opponent as second defendant on the ground that it was referable only to the opponent's position as cross-claimant or cross-defendant. A later letter conveying objections, however, included objection to recovery of "the Costs of the Cross-claim in relation to which the First Defendant's Solicitors have informed us and conceded that Consent Orders had been filed between those parties for them to meet and bear their own liability for the same", and claimed excision of costs "relating to or associated with the Cross Claims". At that time specific objection was taken to a number of items for work or disbursements after the joinder of the opponent as second defendant on the ground that they were cross-claim costs. The language varied, but was for example that the costs "related to the Cross-Claims for which separate orders were filed", and in at least one instance it was directly asserted that a disbursement was "incurred by the Second Defendant in respect of its own Defence to the First Defendant's Cross-Claim". 72 The costs assessor said in his reasons only - " Costs of the Cross Claim The order for costs was a general order that the Respondent pay the Applicants [sic] costs of the proceedings. This includes works [sic] done on the Cross Claim [sic]." 73 The claimant's grounds for review by the panel asserted error by the costs assessor in that he had "interpreted the Judgment to permit and [had] failed or refused to disallow recovery of professional costs and disbursements associated with the two (2) Cross Claims between them [Yawz and the opponent] which were abandoned during the hearing". 74 The panel said as to this - " Grounds 1 and 2 . The Review Panel notes that the cross-claims as between the parties were resolved. The Review Panel notes that the final orders as to costs were three (3) in number and made on 3rd December 2002, the 15th April 2003 and in the Court of Appeal on 12th May 2003. On 3rd December 2002 the plaintiff (Review Applicant) was ordered to pay the defendant's (Review Respondent) costs following a judgment in favour of the Review Respondents. On the 15th April 2003 the court determined an application by the Review Respondent for indemnity costs. The application was dismissed and the Review Respondent was ordered to pay the Review Applicant's costs. On 12th May 2003 the Review Applicant withdrew an appeal and was ordered to pay the Review Respondent's costs. It is clear that no other orders were made between the Review Applicant and Review Respondent concerning costs. The Review Panel is satisfied the Cost Assessor took the orders into account and specifically addressed the submissions of the Review Applicant in relation to the costs relating to the cross-claim." 75 I have described the errors of law asserted in the grounds of appeal to the Supreme Court. The relevant ground asserted error in failing to hold that the claimant was not liable to pay "the Defendant's costs of cross-claims issued by the Defendant". This was curious: it apparently limited the complaint to the opponent's costs as cross-claimant. It does not seem to have been treated as so limited before Harrison AsJ, and in this Court the submissions were particularly directed to the opponent's costs as cross-defendant in the period prior to its joinder as second defendant. 76 The learned Associate Justice said - "17 I shall start with the cross claim issue which [was] raised on appeal. The first and second defendants filed consent orders that dismissed the cross claim between themselves on the basis that they would each pay their own costs of the cross claim. 18 In March 2001 the plaintiff filed an amended statement of claim joining the Owners Corporation (the cross defendant) as a second defendant in the proceedings. When the bill of costs was drawn up it was done so on the basis that claims were made for some work carried out in relation to the cross claim where the work was also associated with preparation of the defence . The Costs Assessor reasoned that the order for costs was a general order that the respondent pay the applicant's costs of the proceedings and this [order] included work done on the cross claim. The Review Panel was satisfied that the Costs Assessor took the orders into account and specifically addressed the submission of the review applicant in relation the costs relating to the cross claim. The bill of costs was drawn to only include costs where the work done was an overlap between the defence and cross claim . The cross defendant became the second defendant well prior to the hearing. In these circumstances the reasons of the Panel are adequate. There is no error of law under s 208L of the Act." (emphasis added) 77 I have emphasised the passages which the claimant submitted were without support in the evidence. Again, since the learned Associate Justice was hearing an appeal from the panel's determination the focus must be on that determination. But the starting-point is the costs assessor's determination. 78 In my opinion, it is clear that the costs assessor took the costs order made by Coorey DCJ, "The plaintiff is to pay the defendants [sic] costs", as extending to the opponent's cross-claim costs. The costs assessor's reference to the cross-claim in the singular obscures whether the costs were the opponent's costs as cross-defendant (including for the period from January 2000 until the opponent was joined as second defendant in March 2001), as cross-claimant, or as both, but presumably as both to the extent that the bill of costs included cross-claim costs: on the costs assessor's view of the order as a general order, it was not necessary for him to consider the cross-claim status of any of the items. 79 The costs assessor was in error. The order on its natural reading was an order for the costs incurred by the opponent as (second) defendant to the claimant's claim. If it were to have a wider scope, that would have been made clear by, for example, addition of a form of Bullock or Sanderson order. The order on a proper appreciation of its scope may have entitled the opponent to recover some of its costs incurred prior to its joinder as second defendant, and recovery of costs referable to both defence and cross-claim and questions of apportionment could have arisen, see below. But the costs assessor did not undertake consideration of the costs in either of these ways. Because he began from a wrong appreciation of the order, his determination in this respect was fundamentally flawed. 80 It is hard to know what the panel did. It recognised that there were no other orders as to costs, but whether that meant that it took a more confined view of scope of the order made by Coorey DCJ is unclear. The panel had to determine the application in the manner that a costs assessor would be required to determine it, and so had to form its own view on the scope of the order and address for itself the claimant's submissions. It was both incorrect and meaningless for it to say that it was satisfied that the costs assessor "took the orders into account" and "specifically addressed the submissions", and what view the panel took of the scope of the order made by Coorey DCJ, if any, is not apparent. The panel did not discharge its function in this respect, and the purported reasons for (apparently) including cross-claim costs in its assessment were wrong insofar as they deferred to the costs assessor's determination and inadequate as an independent determination of the claimant's objections. 81 The emphasised passages in [18] of the reasons of the learned Associate Justice proffer a different basis for acceptance of cross-claim costs. While her Honour recites the central statements by the costs assessor and the panel, she does not engage with their meanings or correctness. There is no suggestion of the factual basis give by her Honour in the reasons of the panel and, if those passages did justify allowance of cross-claim costs, it is not easy to see how they made the reasons of the panel adequate when the panel had said nothing to like effect. I respectfully can not agree with her Honour, and consider that she should have held that the panel's reasons were inadequate. 82 In my opinion, however, the claimant's submission that the emphasised passages were not supported by evidence should be accepted. There was no evidence that the work the subject of the items in the bill of costs was, where in relation to the cross-claims, also associated with the opponent's defence of the claimant's claim. I do not accept the opponent's submission that that can be inferred from commonality in the issues on Yawz's cross-claim against the opponent and the claimant's claim against the opponent and from perusal of the bill of costs, but of more significance it can be seen with sufficient certainty that her Honour was under a misapprehension in what she said. 83 The evidence included part of Yawz's bill of costs, tendered for its reference to the consent dismissal of the cross-claims between Yawz and the opponent. The narration in the Yawz bill of costs, the itemisation of which was not in evidence, included - "12. Our client and the Second Defendant subsequently filed consent orders dismissing our respective cross claims on the basis that we would each pay our own costs of those claims. Claims are made in this Bill of Costs for some work carried out in relation to the cross claim against the Second Defendant where the work was also associated with preparation of our client's defence . It is submitted that the Plaintiff would not, in all probability, have joined the Second Defendant to the proceedings if our client had not brought its cross claim." (emphasis added) 84 It should be concluded, in my opinion, that her Honour mistakenly took this as a narration in the opponent's bill of costs. There was no such narration in the opponent's bill of costs. Nor would it be correct to translate what was said in Yawz's bill of costs to the opponent's bill of costs. Yawz's defence of the claimant's claim and its cross-claim against the opponent were largely contemporaneous, but the opponent only became the second defendant after it had been defending Yawz's cross-claim for over a year. It is not evident from her Honour's reasons that she paid regard to this. Even for the costs while the cross-defence and defence were running contemporaneously, the issues were by no means identical. If the factual basis preferred by her Honour were to be considered, exploration would be necessary of recoverability of costs incurred prior to joinder of the opponent as second defendant and of questions of apportionment where costs were referable to both defence and cross-claim (with the complication of the opponent's costs as cross-claimant). There was no such exploration before her Honour or in this Court. 85 In my opinion, the learned Associate Justice erred in failing to hold that the panel had erred in law in the inadequacy of its reasons and, so far as it was open to her Honour to uphold its determination in relation to cross-claim costs on a new factual basis, that basis was not made out.

Submission (d): error in relation to the Calderbank letters 86 Since the appeal from Harrison AsJ is to be upheld, her Honour's costs order should be set aside. It is not necessary to consider whether her Honour erred in making the special costs order.

Orders 87 Section 208L of the Act provided for this Court to determine the application for assessment itself or, having decided the question the subject of the appeal, to "remit its decision on the question to the costs assessor and order the costs assessor to re-determine the application". For costs assessor read panel (s 208KI). No one suggested the former course. The claimant asked for remission "to a freshly constituted Cost Review Panel". It is not clear whether remission to the panel is to the panel as previously constituted, but in any event I see no reason for intervention in the constitution of the panel undertaking the re-determination. 88 I propose the following orders -

1. Grant leave to appeal and direct the filing of the notice of appeal within seven days.

3. Set aside the orders of Harrison AsJ made on 4 April 2006 and 2 May 2006.

4. In lieu of her Honour's orders - (a) order that the determination of the costs review panel issued on 31 August 2005 be set aside;

(c) order that the panel redetermine the application.

5. Order that the opponent pay the claimant's costs of the appeal to the Supreme Court and of the application for leave to appeal and appeal in this Court, and as to the latter have a certificate under the Suitors Fund Act if otherwise qualified. 89 IPP JA: I agree with Giles JA. **********

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