In the matter of THG Management Pty Ltd (In Liquidation)

Texts Cited: Ritchie's Uniform Civil Procedure NSW [s 98.65]

Category: Principal judgment

Parties: MHC (Aust) Pty Ltd (Plaintiff)
THG Management Pty Ltd (In Liquidation) (Defendant)

Representation: Counsel:
J M Kadar (Plaintiff)
D F Elliot (Defendant)
Solicitors:
ITC Law (Plaintiff)
Amberlake Lawyers (Defendant)

File Number(s): 2024/00467277

JUDGMENT

1. By Originating Process filed on 16 December 2024, the Plaintiff, MHC (Aust) Pty Ltd, sought an order pursuant to s 90-15 of the Insolvency Practice Schedule (Corporations) and r 5.6.54(1) of the Corporations Regulations 2001 (Cth) setting aside a decision by the liquidator of the Defendant, THG Management Pty Ltd, to reject a proof of debt submitted by the Plaintiff in the amount of $400,000.

2. On 14 April 2025, I fixed the matter for hearing before me on 27 May 2025.

3. On 23 May 2025, the Plaintiff informed my Chambers that it no longer wished to proceed with its application and sought leave to discontinue, on the basis that it pay the Defendant’s costs on the ordinary basis. The Defendant indicated that it sought to have its costs determined on a gross sum basis pursuant to s 98(4) of the Civil Procedure Act 2005 (NSW). The hearing on 27 May 2025 was accordingly vacated, and I gave directions for the remaining issue of costs to be determined on the papers.

Steps leading to discontinuance

4. On 31 January 2025, prior to the first directions hearing, the parties agreed a form of orders, which were made by consent. Those orders provided for the Plaintiff to file and serve any evidence by 21 February 2025; the Defendant to file and serve any evidence by 14 March 2025; the Plaintiff to file and serve any evidence in reply by 4 April 2025; and the proceeding to be listed for directions on 14 April 2025.

5. The Plaintiff did not file any evidence by 21 February 2025. On 3 March 2025, the Defendant’s solicitors asked whether the Plaintiff intended to serve any further evidence (other than the supporting affidavit filed with the Originating Process).

6. On 13 March 2025, the Plaintiff’s solicitors sent a letter marked “without prejudice, save as to costs”, proposing that the proceeding be discontinued on a without admission basis, with each party bearing its own costs.

7. On 18 March 2025, the Defendant’s solicitors responded, rejecting this offer. The Defendant’s solicitors stated that, in circumstances where a plaintiff seeks to discontinue, costs must follow the event. The Defendant’s solicitors noted that the Defendant’s costs incurred to date were around $8,000 (excluding GST) and made an offer to consent to the discontinuance of the proceeding on the basis that the Plaintiff pay the Defendant’s costs fixed in the sum of $5,000. This offer was expressed to be open until 5.00pm on 21 March 2025.

8. The Plaintiff did not respond to this offer. It follows that, as at that time, there was no agreement to resolve the matter.

9. On 14 April 2025, there was a directions hearing before me in the Corporations List. The Plaintiff could have informed the Court on this occasion that it did not wish to proceed with its application, and could have sought leave to discontinue. Instead of taking any such step, the Plaintiff did not appear at the directions hearing. There was no explanation at that time (or in the evidence filed in respect of the gross sum costs application) for the Plaintiff’s failure to appear.

10. At that hearing, the Defendant indicated that it did not intend to file any evidence, and I made orders fixing the matter for hearing on Tuesday, 27 May 2025, and requiring the parties to provide a Court Book, including submissions and objections, by 4.00pm on Friday, 23 May 2025.

11. On 6 May 2025, the Plaintiff’s solicitors sent a letter to the Defendant’s solicitors. In this letter, they asserted that “the parties have in effect treated the proceedings as stayed, pending resolution of [the Plaintiff’s] proposal to discontinue the matter”, and made an offer that the proceeding be discontinued on the basis that “Each party bear its own costs of the proceedings; or, in the alternative, [the Plaintiff] pay [the Defendant’s] costs, fixed in the sum of $2,000”. This offer was expressed to remain open for acceptance until 5.00pm on Monday, 20 May 2025.

12. On 15 May 2025, the Plaintiff’s solicitors wrote to the Defendant’s solicitors, referring to the Court timetable and seeking a response to the offer of 6 May 2025, so that “necessary arrangements” could be made for the preparation of the Court Book.

13. On 19 May 2025, the Defendant’s solicitors responded, rejecting the Plaintiff’s offer as “entirely unreasonable”. The Defendant’s solicitors rejected the Plaintiff’s contention that the parties had “treated the proceedings as stayed” since March 2025, and noted that the “proceedings have progressed” since the Defendant’s previous offer, with further costs being incurred, including in respect of the directions hearing on 14 April 2025. The Defendant’s solicitors stated the Defendant’s incurred costs now exceeded $13,000 (excluding GST), and offered to consent to the dismissal of the proceeding on the basis that the Plaintiff pay the Defendant’s costs fixed in the amount of $9,500. This offer was expressed to remain open until 9.00am on 21 May 2025.

14. Later that same day, Ms Lais Almedia of the Plaintiff’s solicitors told Mr Jonathan Hidayat of the Defendant’s solicitors that the Defendant’s offer was not acceptable, adding: “We are going to proceed with the case”.

15. On 21 May 2025, the Plaintiff’s solicitors offered to discontinue the proceeding on the basis that the Plaintiff pay the Defendant’s costs as agreed or assessed. The Defendant consented to leave to discontinue on the basis that the Plaintiff pay the Defendant’s costs, but noted that it would bring a gross sum costs application. A communication was subsequently sent informing the Court of this position.

Parties’ evidence and contentions on costs

The Defendant

16. In support of its application for a gross sum costs order, the Defendant relied upon an affidavit of its solicitor, Mr Hidayat, sworn 26 May 2025.

17. Mr Hidayat’s firm, Amberlake Lawyers, was retained in relation to this proceeding on the day it was commenced.

18. Mr Hidayat gave evidence regarding his hourly rates and the rates of other persons at Amberlake Lawyers who have worked on the matter, as well as the rates of Counsel retained by the Defendant, Mr Elliott. (There was no submission by the Defendant that any of those rates was unreasonable.)

19. Mr Hidayat annexed to his affidavit a detailed fee narrative setting out, in respect of the work undertaken by Amberlake Lawyers, the person performing the work, the hourly rate applied, the task performed, and the time spent on that task. Mr Hidayat also annexed to his affidavit an invoice of Counsel dated 26 May 2025 which likewise contains an itemised schedule of work undertaken.

20. These documents disclose that:

21. the Defendant’s solicitors had incurred unbilled costs of $13,380.00 (excluding GST) in the period up to 26 May 2025, when the application for a gross sum costs order was made; and

22. the Defendant’s counsel has billed fees for the period up to 26 May 2025 in the amount of $7,916.66 (excluding GST).

23. The Defendant seeks, in respect of these total costs of $21,296.66 (excluding GST) a gross sum costs order in the amount of $16,000. This amount has been calculated by applying a discount of 30% to solicitors’ costs, and no discount to counsel’s costs. Given that the Defendant is entitled to an input tax credit for the amount of any GST, the amount sought by way of a gross sum costs order does not include any GST.

The Plaintiff

22. In response, the Plaintiff relied upon an affidavit of its solicitor, Mr James Clancy, affirmed 26 May 2025.

23. Mr Clancy’s affidavit largely concerns the background to the Plaintiff’s application and the reasons why the Plaintiff discontinued its application. (In circumstances where it is agreed that the Plaintiff should pay the Defendant’s costs on the ordinary basis, and the only question is whether the costs should be ordered in a gross sum and, if so, in what amount, those matters are only of marginal significance.)

24. Mr Clancy noted that the Defendant’s involvement in the proceeding has been limited to the filing of a Notice of Appearance and procedural consent orders and, on this basis, expressed the view that a gross sum costs order would not be appropriate, and costs should be resolved as agreed or assessed pursuant to rule 42.19 of the Uniform Civil Procedure Rules 2005 (NSW).

25. The Plaintiff contended that, if any gross sum costs order is made, then various amounts charged for work done by the Defendant’s lawyers appeared to be excessive, and proposed that, by reason of those matters, the total costs should be reduced to $14,206.66, to which a 30% reduction should then be applied, consistently with the Defendant’s approach. The Plaintiff submitted that this would result in a gross sum award of $9,944.67. (However, it should be noted that this figure of $9,944.67 was arrived at by applying a 30% reduction to both solicitors’ fees and counsel’s fees. If, instead, the methodology outlined in the Defendant’s submissions were applied – as the Plaintiff claimed to do – and this 30% reduction were applied only to solicitors’ fees, the resultant gross sum costs order would be $10,969.66.)

Applicable principles

26. There was no dispute about the relevant principles. The summary below is largely drawn from the Defendant’s summary of those principles, with which the Plaintiff agreed.

27. Section 98 of the Civil Procedure Act 2005 (NSW) gives the Court a broad power to award costs, including a power to award costs in a specific gross sum instead of assessed costs (s 98(4)(c)).

28. In Hamod v State of New South Wales & Anor [2011] NSWCA 375 at [816], Beazley JA (with whom Giles and Whealy JJA agreed) observed that:

"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 that factors that merit particular consideration include: the relative responsibility of the parties for the costs incurred ...; the degree of any disproportion between the issue litigated and the costs claimed; the complexity of proceedings in relation to their cost; and the capacity of the unsuccessful party to satisfy any costs liability ..."

29. The principles relevant to the exercise of the Court’s discretion pursuant to s 98(4) of the Civil Procedure Act were summarised by Black J in In the matter of Beverage Freight Services Pty Ltd [2020] NSWSC 797 at [19] as follows (citations omitted):

“… s 98(4) of the Civil Procedure Act 2005 (NSW) relevantly 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 … that power is commonly exercised where costs have been incurred in a lengthy or complex case, but it is not limited to such a case … 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 Court typically applies a discount in assessing costs on a gross sum basis … A gross sum costs order may also be made to avoid the expense, delay and aggregation involved in litigation arising out of an assessment ... 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.”

30. In O’Connor v O’Connor – [Gross Lump Sum Cost Order] [2022] NSWSC 940 at [10], Hammerschlag CJ in Eq observed that:

“Relevant factors may be the likely length and complexity of the assessment process, the possibility that additional costs of formal assessment would disadvantage the winner, that a party has unnecessarily contributed to the costs of the proceedings, especially where the costs are disproportionate to the result, and an expectation, based on prior experience, that further costs assessment is likely to be unduly protracted and unnecessarily add to the costs of the proceedings. The categories of relevant factors are not closed, and each case will turn on its own circumstances.”

31. Counsel's fees will often be allowed in full in a gross sum costs assessment, unless there is any reason to consider those fees as being outside an appropriate range: see, for example, In the matter of Ji Woo International Education Centre Pty Ltd [2019] NSWSC 338 at [29] (Black J); Beverage Freight Services at [36].

32. In adopting a broad-brush approach, the Court will typically apply a discount to the amounts claimed in assessing costs on a gross sum basis: Lorenzato v Lorenzato & Anor (No 2) [2011] NSWSC 790 at [3] (Black J).

33. In Gupta v Fordham Laboratories Pty Ltd (No 2) [2018] NSWSC 694, Ward CJ in Eq (as her Honour then was) stated (at [31]) that a recovery on a party/party basis of between 70%-80% was commensurate with the rule of thumb adopted in various other matters: see for instance Green Camel Pty Ltd v Urban Ecological Systems Ltd [2017] NSWSC 362 at [59]-[67] (per Ward CJ in Eq); and Ji Woo International Education Centre at [29].

34. In the recent decision of Salmon v Albarran (No 2) [2025] NSWCA 115, the Court of Appeal (Ward ACJ, Leeming and Ball JJA) applied not only a reduction in respect of solicitors’ fees in line with the evidence in that case that such costs are normally reduced by 20-30%, but also a 10% discount to counsel’s fees, “reflecting that the assessment of party/party costs is less than a full indemnity” (at [29]). The Court then applied a further discount of 10% to the total costs, which was “required, to reflect the fact that there will be no assessment, and [the party against whom the costs order is made] is losing the opportunity of doing better on assessment than on the gross sum costs assessed by this Court”. (at [30]) Their Honours observed that:

“Another way of putting this is that the approach of this Court is not to do the best it can to determine the likely outcome of a costs assessment, but instead to determine an amount of which it can be said with a measure of confidence that any assessment would yield a greater amount. To that end, we apply a further 10% discount.”

35. However, as observed by Brereton J in Hancock v Rinehart (Lump Sum Costs) [2015] NSWSC 1640 at [57]:

“While it is undoubtedly the usual practice of the court when making a lump sum costs order to apply a discount for the reasons mentioned, that does not mean that the Court must apply a percentage discount to the sum sought by the successful party, and the Court ‘must be astute not to cause an injustice to the successful party’ by applying ‘an arbitrary “fail safe” discount on the costs estimate submitted to the court’. Thus if the court can be confident that there is little risk that the sum includes costs that might be disallowed on assessment, the case for a discount is seriously undermined.”

Determination

36. I am satisfied that it is appropriate, in the circumstances of this case, for there to be a gross sum costs order.

37. As the Defendant submitted, the costs involved in this matter are relatively modest, and a gross sum determination will save the time and cost of a formal costs assessment process, which would involve preparing a bill of costs, serving that bill, notifying objections, and referral to an external costs assessor. Significantly, the Plaintiff accepted in its submissions that “a gross sum costs order will alleviate any delay and further expense entailed by an assessment process”.

38. Nonetheless, the Plaintiff contended that the matter should proceed to assessment because there were “specific examples of charges incurred by the Defendant which appear excessive and/or unnecessary”. I am not satisfied that this provides a good reason for refusing to make a gross sum costs order, particularly in circumstances where issues have been raised in relation to only a handful of items in the (relatively short) fee narrative and the parties have already gone to the expense of preparing evidence and submissions dealing with these matters in the context of the current application.

39. In respect of solicitors’ costs, the Plaintiff made comments in respect of five (of the 27) items in the fee narrative and submitted that the total costs in respect of these particular items should be reduced from $3,570 to $980. Some of the individual criticisms are not particularly compelling. For example:

40. The Plaintiff criticised an entry of 36 minutes on 11 April 2025 described as “Telephone call on Counsel and preparing documents for Court”, on the basis that the only document “filed” by the Defendant was a notice of appearance, and the Plaintiff proposed that this be reduced to the equivalent of 12 minutes of time. However, the time entry in question was for a date (11 April 2025) which was well after the notice of appearance was filed (3 March 2025), and which was the last business day before the directions hearing on 14 April 2025. It was reasonable for the Defendant’s solicitors and counsel to be discussing, at that time, what would occur at the directions hearing and preparing documents for that hearing, particularly where they did not know that the Plaintiff would not be attending that hearing.

41. The Plaintiff criticises an entry of just over one hour of time on 19 May 2025 for drafting the index to the Court Book, on the basis that there was no necessity for the Court Book to be prepared given that the Plaintiff’s “[i]ntention to discontinue [had been] communicated by this stage”. However, as set out above, on 15 May 2025, the Plaintiff’s solicitors had stated that the Court Book would need to be prepared if the matter did not resolve; and on 19 May 2025, the Plaintiff had rejected the Defendant’s offer and had indicated that the matter would be proceeding to hearing. It was reasonable, in those circumstances, for the Defendant’s solicitors to take steps to prepare the Court Book which was required to be provided by 23 May 2025.

42. The main criticism in respect of Counsel’s fees is that Counsel charged one day of time on 20 May 2025 for “Drafting submissions and objections”. The Plaintiff submitted that: “it is unclear why the Defendant incurred such costs in circumstances where the parties were ad-idem as [to] discontinuance by 18 March 2025”. However, the parties were not ad idem as to discontinuance by that date. The chronology set out at paragraphs [4]-[14] above shows that there was a series of offers and counter offers, with the Plaintiff’s solicitor expressly stating on 19 May 2025 that the Plaintiff was “going to proceed with the case”. In those circumstances, it was reasonable for the Defendant to instruct counsel to proceed to prepare submissions on 20 May 2025, particularly given the timetable that had been ordered by the Court.

43. The Plaintiff is in a position where substantial costs have continued to be incurred well after the point in time when the Plaintiff first signalled a willingness to abandon its application. That is a position of its own making.

44. In particular, the Plaintiff could have accepted:

45. an offer made by the Defendant on 18 March 2025 to resolve the proceeding on the basis that it pay the Defendant’s costs in the fixed sum of $5,000; and

46. an offer made by the Defendant on 19 May 2025 to resolve the proceeding on the basis that it pay the Defendant’s costs in the fixed sum of $9,500.

47. Alternatively, the Plaintiff could have attended the directions hearing on 14 April 2025, informed the Court that it did not intend to proceed with its application and sought leave at that time to discontinue on the basis that it pay the Defendant’s costs (such costs being, at that time, less than $10,000, before any discount was applied). This would have led to no further costs being incurred by the Defendant in the proceeding.

48. Instead, the Plaintiff allowed the proceeding to continue, resulting in further costs being expended. Further, on 19 May 2025, the Plaintiff’s solicitors expressly communicated to the Defendant that the Plaintiff was “going to proceed with the case”. This statement led to the Defendant incurring significant costs in preparing to answer the Plaintiff’s case. Out of the Defendant’s total costs of $21,296.66, an amount of $8,470 (or nearly 40%) was incurred after 19 May 2025. I do not accept the Plaintiff’s submission that the work undertaken by the Defendant’s legal representatives was unreasonable in those circumstances.

49. However, I consider that there should be further discounts to the Defendant’s costs in order to arrive at an appropriate gross sum, in addition to the 30% discount to solicitors’ costs proposed by the Defendant. In particular, there should be:

50. a 10% discount to Counsel’s fees, to reflect that the assessment of party/party costs is less than a full indemnity; and

51. a further 10% discount to the total costs (after applying a 30% discount to solicitors’ costs and a 10% discount to counsel’s costs) to reflect the fact that there will be no assessment, and the Plaintiff is losing the opportunity to do better on assessment than on the gross sum costs assessed by the Court.

52. The matters raised by the Plaintiff regarding the Defendant’s costs, while not providing a basis to disregard a large proportion of those costs altogether (before any discount is applied), do raise some legitimate matters of enquiry regarding proportionality and doubling up of charges, and which support a conclusion that these further discounts are appropriate in the circumstances of this case.

53. This leads to the following result:

54. Solicitors’ fees ($13,380 exc GST), discounted by 30% = $9,366.00;

55. Counsel’s fees ($7,916.66 exc GST), discounted by 10% = $7,125.00;

56. Subtotal ($9,366 + $7,125 = $16,491), discounted by 10% = $14,842.00.

57. I will accordingly make a gross sum costs order in favour of the Defendant in this amount.

orders

49. For the reasons given above, I make the following order:

50. Order that the Plaintiff pay the Defendant’s costs of the proceeding fixed in the amount of $14,842.00 net of GST.

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