66 NSWLR 203
Hamod v State of New South Wales [2011] NSWCA 375
Harold v Smith (1860) 5H&N 381
Source
Original judgment source is linked above.
Catchwords
66 NSWLR 203
Hamod v State of New South Wales [2011] NSWCA 375
Harold v Smith (1860) 5H&N 381
Judgment (2 paragraphs)
[1]
Judgment
HIS HONOUR: This is a judgment on the question of costs.
These proceedings commenced in the Federal Court, the Plaintiff being Neville James Gibson and the First Defendant being at that stage The Official Assignee of New Zealand. The proceedings were commenced in the Federal Court so Dr Gibson says because it involved questions of bankruptcy.
The case was allotted to Flick J. After some investigation and elimination of the bankruptcy point his Honour on 27 August 2015 ordered that the proceedings be transferred to this Court under the Jurisdiction of Courts (Cross-Vesting) Act 1987 (Cth) and ordered that Dr Gibson pay the costs of Mr Drumm as agreed or assessed associated with all directions hearings held in the Federal Court and such costs that may have been thrown away with respect to the interlocutory application filed on 19 August 2015. Other costs were reserved for consideration by this Court.
The proceedings were then renumbered in this Court as 2015/256225. Together with associated cases and a series of other interlocutory motions (I think about 50 in all) the matter came into my directions list. However in due course Dr Gibson did not pursue the case against Mr Drumm. It is clear to me that Mr Drumm is entitled to an order for costs. However, Dr Gibson says that it would not be appropriate to make such an order because there is no proper costs agreement between Mr Drumm and his solicitors. On the other hand Mr Drumm would like me to assess the gross costs of Mr Drumm against Dr Gibson.
There is in evidence a form of bill created by Mr Drumm's solicitors claiming costs. The claim is for solicitors' costs totalling $14,734 and counsel's fees of $7,730 together with the filing fee in the Federal Court of $455. Flick J's judgment for costs covered the filing fee and Mr Elliott of counsel who appears for Mr Drumm in his submissions puts that of the $14,734 claimed, $7,230 plus counsel's fees of $3,600 were covered by the costs order made by Flick J. The balance of $7,504 plus counsel's fees of $4,130 is currently sought against Dr Gibson on the indemnity basis.
Gibson v Drumm & Others [2016] NSWSC 570 | Case summary | Zoe
Apart from challenging certain items to which I will return shortly Dr Gibson challenges the amount claimed because he says, and it appears to be conceded, that Mr Drumm has not paid his solicitors any moneys in respect of this case and he has never received a signed bill of costs and further that the costs agreement is void under the Legal Profession Act 2004.
The Legal Profession Act 2004 was repealed as of 1 July 2015 and was replaced by the Legal Profession Uniform Law (NSW) 2014. The costs straddle the repeal dates. As for present purposes both pieces of legislation are virtually identical I will refer to the section numbers in the 2004 Act .
I first posed the question was there a costs agreement entered into and if so was it valid or void?
A costs agreement is an agreement, that is, it is a bipartite concept. The evidence here is that I think on two occasions the solicitor sent Mr Drumm the proposed agreement, however, Mr Drumm never signed any acceptance. Section 323(3) of the relevant Act provides that "a costs agreement may consist of a written offer… that is accepted in writing or by other conduct". There was no acceptance in writing. The first costs agreement was sent by letter of 26 February 2015. It was "updated" and enclosed in a further letter of 16 March 2015. There was a further costs agreement of 15 September 2015 which was brought about because the current proceedings were added to the host of proceedings involving the parties. For this reason it is this costs agreement that is the basis of the present claim.
Mr Drumm never signed it however he did email the solicitors to say that he was happy with it. Of course being happy with a document and actually entering into the transactions contained in the document are two different things. However the solicitors then continued then to report to Mr Drumm as to what was happening in the litigation and there is not a shred of material to suggest that they were acting contrary to his instructions.
Dr Gibson appears to be challenging whether Mr Drumm retained the solicitors who were charging him costs. Mr Elliott submitted that the onus of proof of such an allegation is on the person making it. He cited a decision of the Victorian Court of Appeal in Shaw v Yarranova Pty Ltd [2011] VSCA 55 in support of that proposition as indeed it is. Further support can be found in Note 7.24.15 of the Uniform Civil Procedure Practice citing numerous authorities. There are authorities the other way and the leading authority in this Division has always been considered to be the decision of Powell J in Harry S Baggs' Liquidation Warehouse Pty Ltd v Whittaker (1982) 44 NSWLR 421. However that case is not a case between solicitor and client but rather an application by a third party that a person who purported to act as solicitor for a company had no authority to do so and is personally liable for the costs. Apart from mentioning the point to make it clear I have not overlooked it, it is of no moment in the instant case because it is clear that on whomever is the onus there is quite clearly a retainer of the solicitor by Mr Drumm. The real question is whether there is a costs agreement and if there is whether it is void under the statute.
Dr Gibson of course is not in a position to challenge the documentation and it would seem that Mr Drumm acquiesced in the costs agreement and that his conduct is sufficient to bring about an acceptance of the solicitors' offer contained in the various documents particularly that of 15 September 2015.
However s 322(4) of the relevant Act provides that the offer must clearly state inter alia the type of conduct that will constitute acceptance and that the client may accept the offer in writing or by other conduct. The present documents do not do this. Section 327(1) provides that a costs agreement that contravenes a provision of the relevant division is void. It is strongly arguable that failure to indicate how the client's conduct can constitute acceptance makes it void however if it is void then under s 327(2) legal costs under a void costs agreement are recoverable as set out in s 319 and that means essentially as to insofar as they are fair and reasonable. Accordingly, on assessment or by the Court making a gross fees order it is just irrelevant as to whether the costs agreement is valid or void.
Dr Gibson argued on the basis of what is called the indemnity principle, that is that costs are to indemnify the successful party against his costs and expenses and if he has no legal liability to his solicitor then he is not entitled to any costs. There have been a series of cases dealing with the indemnity principle which seems first to have seen the light of day in Harold v Smith (1860) 5H&N 381; 157 ER 1229, 1231 [385]. It was thoroughly considered by the Court of Appeal in Dyktynski v BHP Titanium Minerals Pty Ltd [2004] NSWCA 154; 66 NSWLR 203. Perhaps a good statement of the rule as any was succinctly put by French J when a judge of the Federal Court in Angar Pty Ltd v Ilick Motor Co (1992) 37 FCR 65 at 71: "the indemnity principle is satisfied when it is shown to be a liability, in existence as between solicitor and client, though the prospect of payment be remote". Dr Gibson cited King v King & Ors [2012] QCA 81 (3 April 2012), but that does not add anything new.
The Angar case quotation covers the situation where the client may be impecunious or for political reasons a solicitor is unlikely to claim against the client but the client is legally bound and it also covers the case as made clear by the Victorian Court of Appeal in Shaw's case where the client has not received a signed bill. Under the legislation a client is not able to be successfully sued on a solicitor's bill until the client has received a signed bill. However it would be absurd to require a signed bill at the time when a costs order is made and the Victorian Court of Appeal has held that the fact that client may not actually be sued until he or she receives a signed bill does not prevent the court from making an order for the payment of costs by the client.
Accordingly, in my view all Dr Gibson's general challenges to the bill fail. Furthermore it is clear that an order for costs must be made against him in the circumstances. Accordingly all that is left is for me to consider particular items and the question as to whether I should make a gross order for costs.
Dr Gibson also challenges certain items in the bill and I myself have examined it critically.
The items of concern principally deal with what allegedly happened in the solicitor's office on 27 and 28 July 2015. Unfortunately we do not know who "AGA" is, though his or her charge-out rate is $250 which is odd because the costs agreement only deals with lawyers' charge-out rate of $390, $340 or $300. Presumably AGA is not a qualified lawyer. Even if he or she were, the fee of $225 for reading emails from counsel and "reviewing" affidavits on file would not prima facie be chargeable to the opponents on a party and party taxation or assessment. Likewise AGA's reviewing transcript and considering authorities for which the firm charged $300 would fall into the same category as also would item 53, AGA's reading email from counsel.
Items, 47, 49 and 52 refer to matters which SSU did. SSU is a partner in the firm and a solicitor. It would seem to me fair enough that he should review emails from counsel, item 47, and send an email to a client, item 49. However, items 45 and 52 are time spent "considering strategy".
I am not too sure what this really means. However, one must remember what Hodgson JA said in Lawrence v Nikolaidis & Co (2003) 57 NSWLR 355 (CA) at 372-3 that costs are not allowed solicitors in relation to matters such as collation of documents for time spent in refreshing recollection or making notes and like matters. I would add that costs are also not payable by the client for lawyers improving their own legal education. Although it is reasonable for researching the law in some of its more difficult aspects barristers and solicitors are expected to know the basic law and cannot charge the client for spending a couple of hours refreshing their recollection of it or learning it for the first time. Again, when there are two people in a firm solicitors cannot charge for both persons reading counsel's advice etcetera unless there is a very good reason for two persons being involved such as for instance where one solicitor or clerk is dealing with the intellectual property side of a case and the other with the presentation of evidence.
On the basis that the costs agreement was void, I have to be satisfied that the costs would be fair and reasonable or at least fair and reasonable in the eyes of a costs assessor. Planning strategy in the early stages of a Federal Court proceeding does not prima facie amount to something for which the client should pay. The client should not be paying for the internal intellectual processes of the solicitor. He or she will pay when those processes are disclosed in a communication to which the client will either agree or disagree. The mere fact that a solicitor plans a strategy is not in itself a benefit to the client unless that is communicated.
It would seem to me that deducting those five items totalling $640 then leaves the solicitor's claim, excluding counsel's fees, at $6,864.
Mr Elliott requests that the Court assess the gross costs. He submits that this is appropriate in a case where, as here, the financial circumstances of the party ordered to pay costs is poor, see eg Hamod v State of New South Wales [2011] NSWCA 375 at [813]-[820].
I agree that this is the appropriate way to proceed in this case.
Mr Elliott reminded me that in Tim Barr Pty Ltd v Narui Goldcoast Pty Ltd [2001] NSWSC 11 Barrett J made it clear that when a court is fixing gross costs it does not attempt to emulate a costs assessor and applies a broader brush but it must be competent that the material available enables it to make a sufficiently reliable calculation or estimate.
I have very often taken the view that it has been so long since I was in practice at the bar that I am unable to do such a reliable calculation and leave the parties to assessment. However in the instant case the bill is very detailed and there is a fair indication of the items that Dr Gibson is unhappy about.
It is customary to make some discount on the solicitor's bill because of the broad brush view that is going to be taken and Mr Elliott himself acknowledges that that might be the situation here suggesting that a discount beyond 12.5% is not required.
As I have already made some reductions to the bill I will apply 12% as a fair discount in the instant case and this means a deduction of $824 bringing the bill down to $6,040 to which one adds counsel's fees of $4,130 which means allowing the claim of $10,170.
The claim is based on an order for indemnity costs. I agree with Mr Elliott's submissions that the history of this matter shows that indemnity costs are required. The defendant has been put to considerable expense because of the large number of motions and the very large bulk of affidavit material and yet in the end none of that material was ever pressed to a final hearing.
The order I make is, accordingly, that the plaintiff pay Mr Drumm's costs which are assessed, including counsel, fees at $10,170. I think the exhibits should remain subject to any order that a registrar might make.
[2]
Amendments
12 May 2016 - No amendment.
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Decision last updated: 12 May 2016