Jackson v KAH Australia Pty Ltd t/as Bayview Boulevard Sydney

Supreme Court of NSW|2018-02-28

.2) [2017] NSWSC 889 Watkins Limited v Caicaria Pty Limited (1983) 78 FLR 417 Whitney v Dream Developments Pty Ltd [2013] NSWCA 188 Ziliotto v Hakim [2013] NSWCA 359 Category: Costs Parties: Liana Renae Jackson (Plaintiff) KAH Australia Pty Ltd t/as Bayview Boulevard Sydney (Defendant) Shine Lawyers (Second Defendant) Representation: Counsel: N Chen SC (First Defendant) J Cohen (Second Defendant)

Solicitors: McCabes Lawyers (First Defendant) Shine Lawyers (Second Defendant) File Number(s): 2014/136179 Publication restriction: Nil

Judgment

HER HONOUR: This judgment concerns costs.

Timetable

On 7 July 2017, a timetable was made for the filing of submissions as follows: 1. Defendant to file and serve submissions on or before 21 July 2017. 2. Plaintiff to file and serve submissions on or before 4 August 2017. 3. The defendant to file and serve any submissions in reply by 4 September 2017.
The plaintiff did not comply with order (2). I varied the timetable by granting the plaintiff an extension of time to file and serve her submissions by 21 August 2017.
On 8 September 2017, my associate emailed the plaintiff. She advised the plaintiff of the prior directions made and advised her that her solicitor had filed a notice of intention of ceasing to act. I extended the plaintiff's timetable again. The email continued: "In order to afford you procedural fairness her Honour makes the following order: 1. The plaintiff is to file and serve written submissions in relation to costs on or before 21 September 2017. If you do not comply with this order, her Honour will proceed to deal with the issues in relation to costs raised by the defendant"
On 15 September 2017, the plaintiff's solicitor filed a notice of ceasing to act. To date, no submissions have been received from the plaintiff.
On 8 November 2017, Shine Lawyers filed a notice of motion seeking to be joined as a defendant.
On 28 November 2017, when the matter was listed for the hearing of costs, I made the following orders: "(1) Grant leave for applicant to be joined as second defendant for the purposes of order 2 of the notice of motion filed 28 November 2017. (2) The plaintiff is to file and serve written submissions by 14 December 2017. (3) The plaintiff's former solicitors are to provide to the plaintiff copies of the notice of motion filed 28 November 2017 and any affidavits and written submissions by 14 December 2017. (4) The defendant is to file and serve any written submissions by 2 February 2018. (5) Liberty to approach on 3 days notice. (6) The plaintiff's former solicitors are to pay the defendant's costs of today."
For convenience, I shall refer to the first defendant as "KAH" and the second defendant as "Shine".
The parties have filed submissions in accordance with these orders. Shine has sought to exercise an equitable lien over the judgment monies of $94,533.05.

The law on costs

KAH seeks the following costs order: "(1) An order pursuant s 98(1) of the Civil Procedure Act 2005 (NSW) or Rule 42.15 of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") that: (a) KAH pay the plaintiff's costs in respect of the claim assessed on the ordinary basis up to and including 15 June 2015; and (b) The plaintiff pay the KAH's costs in respect of the claim assessed on an indemnity basis from and including 16 June 2015. (2) An order, pursuant to s 98(4)(c) of the Civil Procedure Act that the plaintiff pay KAH's gross sum costs in the amount of $140,000. (3) An order, pursuant to s 98(4)(b) of the Civil Procedure Act and the inherent power of the Court, that KAH be permitted to set-off any amounts payable by the plaintiff to KAH in respect of costs."
KAH relied upon the affidavit of Leighton James Hawkes dated 21 July 2017. Shine relied upon the affidavit of Sharron Vogel dated 12 December 2017.
The starting point is s 98 of the Civil Procedure Act 2005 (NSW). It reads: "98 Courts powers as to costs (1) Subject to rules of court and to this or any other Act: (a) costs are in the discretion of the court, and (b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and (c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis. (2) Subject to rules of court and to this or any other Act, a party to proceedings may not recover costs from any other party otherwise than pursuant to an order of the court. (3) An order as to costs may be made by the court at any stage of the proceedings or after the conclusion of the proceedings. (4) In particular, at any time before costs are referred for assessment, the court may make an order to the effect that the party to whom costs are to be paid is to be entitled to: (a) costs up to, or from, a specified stage of the proceedings, or (b) a specified proportion of the assessed costs, or (c) a specified gross sum instead of assessed costs, or (d) such proportion of the assessed costs as does not exceed a specified amount." [My emphasis]
UCPR 42.1, 42.2 and 42.15 read: "42.1 General rule that costs follow the event Subject to this Part, if the court makes any order as to costs, the court is to order that the costs follow the event unless it appears to the court that some other order should be made as to the whole or any part of the costs. 42.2 General rule as to assessment of costs Unless the court orders otherwise or these rules otherwise provide, costs payable to a person under an order of the court or these rules are to be assessed on the ordinary basis. 42.15 Where offer not accepted and judgment no more favourable to plaintiff (1) This rule applies if the offer is made by the defendant, but not accepted by the plaintiff, and the plaintiff obtains an order or judgment on the claim no more favourable to the plaintiff than the terms of the offer. (2) Unless the court orders otherwise: (a) the plaintiff is entitled to an order against the defendant for the plaintiff's costs in respect of the claim, to be assessed on the ordinary basis, up to the time from which the defendant becomes entitled to costs under paragraph (b), and (b) the defendant is entitled to an order against the plaintiff for the defendant's costs in respect of the claim, assessed on an indemnity basis: (i) if the offer was made before the first day of the trial, as from the beginning of the day following the day on which the offer was made, and (ii) if the offer was made on or after the first day of the trial, as from 11 am on the day following the day on which the offer was made."
UCPR 20.26 reads: "20.26 Making of offer (1) In any proceedings, any party may, by notice in writing, make an offer to any other party to compromise any claim in the proceedings, either in whole or in part, on specified terms. (2) An offer under this rule: (a) must identify: (i) the claim or part of the claim to which it relates, and (ii) the proposed orders for disposal of the claim or part of the claim, including, if a monetary judgment is proposed, the amount of that monetary judgment, and … (c) must not include an amount for costs and must not be expressed to be inclusive of costs, and (d) must bear a statement to the effect that the offer is made in accordance with these rules, … … (8) Unless the notice of offer otherwise provides, an offer providing for the payment of money, or the doing of any other act, is taken to provide for the payment of that money, or the doing of that act, within 28 days after acceptance of the offer. (9) An offer is taken to have been made without prejudice, unless the notice of offer otherwise provides. …"

KAH's offer of compromise

On 15 June 2015, KAH served on Shine (the plaintiff's solicitor) an offer of compromise in accordance with UCPR 20.26, together with a covering letter. (Aff, Hawkes 21 July 2017, [5]; Ex LXH1). The cover letter stated: "We enclose by way of service Offer of Compromise dated 15 June 2015. In full and final settlement of the plaintiff's claim the defendant agrees to pay the plaintiff $225,000 plus costs as agreed or assessed. The offer remains open for acceptance by the plaintiff until the close of business (5pm) on 13 July, and is made in accordance with principles in Calderbank v Calderbank [1975] 3 All ER 333."
The attached offer of compromise dated 15 June 2015 stated: "The defendant offers to settle the plaintiff's claim against it on a compromise basis on the following terms: 1. Judgment for the plaintiff against the defendant in the sum of $225,000. 2. This offer is made in accordance with rule 20.26 of the Uniform Civil Procedure Rules. 3. This offer shall remain open for 28 days."
Some two years later, judgment was entered in favour of the plaintiff in the sum of $94,533.05. The offer of compromise was for the sum of $225,000.

Shine's submissions

Shine agreed the letter dated 15 June 2015 was sent enclosing what purported to be an offer of compromise pursuant to the UCPR 20.26. Shine does not take issue with the fact the offer made by KAH was a genuine compromise. However, it submitted that the letter enclosing the document purporting to be an offer of compromise stated the offer was made in accordance with the principles in Calderbank v Calderbank [1975] 3 All ER 333 ("Calderbank"). According to Shine, a critical issue before this Court is whether there was a valid offer of compromise under the UCPR 20.26, or whether the offer was in fact a Calderbank offer. Alternatively, it was submitted that the letter enclosing the document may itself be an offer of compromise, with the offer of compromise attached being itself defective and of no effect.
Shine does not suggest that the actual document purporting to be an offer of compromise is defective. Rather, the critical fact is that despite the letter referring to the offer as a Calderbank offer, it does not otherwise have the indicia of a Calderbank letter. The letter appears to be describing the totality of the documentation forwarded on 15 June 2015 as being a Calderbank offer and therefore, the Court should exercise its discretion under s 98 of the Civil Procedure Act and treat the offer as not being made under the UCPR, but rather an attempt by KAH to make a Calderbank offer. However, Shine submitted that because the covering letter does not otherwise have the indicia of a Calderbank offer, it could not be said to be something obscure such as two separate offers.
Shine submitted that in relation to defective offers of compromise there is authority that a defective offer made under UCPR 20.26 can be treated as a Calderbank offer and referred to the case of Whitney v Dream Developments Pty Ltd [2013] NSWCA 188 ("Whitney") where the Court of Appeal held that it is necessary to look at all the surrounding circumstances. It was also held that a defective offer of compromise could not be treated as a Calderbank offer because it did not purport to be anything other than an offer of compromise under UCPR 20.26, the covering letter did not assert the offer would be used for costs purposes (a crucial element of a Calderbank offer), and did not have any of the usual indicia associated with a Calderbank offer. The Court of Appeal identified at [57] that a critical feature of a Calderbank offer is that it contains a statement that the offer be relied upon for any cost order and includes the specific type of costs sought. The letter must also state that any rejection of the offer will have consequences in costs and must specify what these are.
Shine submitted that the covering letter in the present circumstances does not state the offer will be relied upon for costs. It was further submitted that because KAH made a representation that the offer was a Calderbank offer, the Court should not treat it as an offer of compromise under UCPR 20.26. Shine says that the nature of the offer is unclear and confusing. Therefore, this Court should treat the correspondence dated 15 June 2015 as being of no effect and accordingly, the Court should not displace the usual principles that costs follow the event and the plaintiff should be awarded costs, or in the alternative, no order as to costs should be made.
Shine accepts this may appear somewhat unfair to KAH. For a Court to give effect to a Calderbank offer, the party in rejecting the offer must have acted unreasonably when it rejected the offer. Putting to one side the issue of reasonableness, there is authority for the proposition that even if the Court finds that neither an offer of compromise under UCPR 20.26 nor a valid Calderbank offer has been made, the Court can exercise its general discretion to make no orders as to costs. Shine referred to Ziliotto, where the Court of Appeal held at [134] that despite the offeror having intended to make an offer, the offer could neither be categorised as made under UCPR 20.26 nor under the Calderbank principles. Therefore, notwithstanding that the rejection of the offer was unreasonable, the Court determined the offer was of no consequence and, upon taking into account the conduct of the parties, ordered that each party pay its own costs. Shine submitted that if this Court finds after taking into account all factors that the plaintiff's conduct in litigation was unreasonable, it should nonetheless adopt the approach in Ziliotto and make an order that each party pay its own costs.
However, Shine says that if this Court does not adopt this approach, the correspondence should be treated as a valid Calderbank offer rather than an offer of compromise because KAH represented the offer as a Calderbank offer. In reaching this conclusion, the Court may have regard to the total effect of the document which is purported to be a formal offer of compromise and the covering letter describing the offer as a Calderbank offer.
Finally, Shine submitted that as the Calderbank offer was made relatively early in the proceedings, this Court should also assess its rejection with caution as hindsight cannot dictate whether a party rejecting an offer did so unreasonably. This is because the party upon receipt of the offer does not have the benefit of experts' reports, particulars or evidence and often only has a limited ability to assess the strengths and weaknesses of its case: see Edwards Madigan Torillo Briggs Pty Ltd v Stack [2003] NSWCA 302 at [22].

KAH's submissions

KAH submitted that it is clear that there needs to be substantial compliance with UCPR 20.26 in order to engage the rules in connection with costs: see Neville v Lam [2014] NSWSC 1088, Beech-Jones J at [13]-[15]. Shine concedes, not only was there substantial compliance, but there was strict compliance. The point sought to be made appears to be that, despite this, the Court should find that, when read with the covering letter, KAH was attempting to make a Calderbank offer (Shine submissions at [6] and [7]). KAH says that this submission misunderstands, and therefore mischaracterises the letter.
KAH submitted that the letter dated 15 June 2015 did two things. First, it served an offer of compromise ([1]); and secondly, it made a Calderbank offer ([2] and [3]). The offer referred to in [3], is the offer made in [2], a Calderbank offer. KAH says that this is plain from the language used. Paragraph 3 refers to "The offer" and thereafter sets out other terms of it, such as that it was "plus costs as agreed or assessed" (something that was impermissible for an offer of compromise to do) and it separately identified the period for acceptance "(5pm) on 13 July 2015" (something that was unnecessary to do in connection with the offer of compromise, as it had provided its own period, namely "This offer shall remain open for 28 days"). The fact that the offer of compromise was expressed to be made "in accordance with rule 20.26 of the Uniform Civil Procedure Rules" further emphasises the separate nature of the offers made.
KAH further submitted that there are other reasons for rejecting the submissions made by Shine. Shine says that the nature of the offer was unclear and/or confusing. KAH contends that this submission cannot be accepted as there can be no doubt nor ambiguity in what was offered, namely, judgment for the plaintiff in the amount of $225,000 plus costs. KAH says that this is apparent from the offer of compromise and the offer in the letter dated 15 June 2015, and had either of these offers been accepted by the plaintiff, orders giving effect to this agreement would have been made. Whether for costs purposes the offer is a Calderbank offer, a formal offer, both, or neither has no bearing on the terms of the offer made, and the ability of the plaintiff to have accepted it. In any event, there is no evidence that the plaintiff or her legal representatives found the letter and/or offer of compromise "unclear" and/or "confusing".
KAH submitted that the Court should find that it served two offers, an offer of compromise and a Calderbank offer; and that these offers were unambiguous and clear.
KAH bears the onus of persuading the Court that the order should be made: see Evans Shire Council v Richardson [2006] NSWCA 61 at [26]. There is no prima facie presumption in favour of indemnity costs if the offer is not bettered: see Trustee for the Salvation Army (NSW) Property Trust v Becker (No 2) [2007] NSWCA 194 at [7]. This position is to be contrasted to the position of a party seeking to displace the operation of the rules when a valid offer of compromise has been made: see Perisher Blue Pty Limited v Nair Smith (No 2) [2015] NSWCA 268 at [28].

Consideration

KAH bears the onus of persuading this Court that the order should be made.
While there is a reference to "Calderbank v Calderbank [1975] 3 All ER 333" in the last paragraph of the covering letter I consider it to be irrelevant but not confusing. The reference in the covering letter to a Calderbank offer is not valid because nowhere in the letter does it mention that the letter will be relied upon in relation to costs.
The document entitled "Offer of Compromise" is clear. It complies with the requirements of UCPR 20.26. It identifies the part of the claim to which it relates and sets out the amount of monetary judgment. It does not include an amount for costs. The "Offer of Compromise" states that the offer is made in accordance with UCPR 20.26 and was expressed to be open for 28 days. In my view, the offer of compromise made by KAH complies with UCPR 20.26 and is valid.

Was it unreasonable for the plaintiff to reject the offer?

Shine's submissions

An award for indemnity costs will not be made unless the offer was a genuine one and it was unreasonable for the offeree not to accept the offer: see Herning v GWS Machinery Pty Limited (No 2) [2005] NSWCA 375 at [4]; Trustee for the Salvation Army (NSW) Property Trust v Becker (No 2) [2007] NSWCA 194 at [7].
Shine submitted that the mere fact the party who rejected the offer ultimately receives less than the offer (even if there is a significant disparity between the judgment and the amount offered) does not of itself prove unreasonableness.
Shine submitted that there is no evidence that it was unreasonable for the plaintiff to reject the offer and that KAH has not discharged its onus of proof to persuade the Court to depart from the usual cost order nor has KAH established that indemnity costs should be ordered against the plaintiff from the date of the offer.
Shine says that there was a real issue for the Court to determine, that is, whether the second fall was caused by the first injury. Both parties had medical evidence to support their positions. The Court accepted that KAH was liable for the first injury on 21 July 2017. According to Shine, a key issue the Court had to determine at trial was whether the second injury on 7 January 2013, in which the plaintiff fell and injured her head, was caused by the first injury. Had the Court accepted that the second fall was caused by the first injury, the plaintiff most likely would have had greater damages than the amount awarded by the Court.
While it is accepted the Court had reservations about the plaintiff's credit, ultimately the issue of whether or not the second fall was caused by the first fall turned on the medical evidence. It was accepted by the Court that the plaintiff as a result of the fall, became unconscious and had little memory of how the fall occurred. Thus the plaintiff's explanation of how the fall occurred was of limited value. Ultimately, Shine asserts that the Court found the two accidents were not connected, and relied upon the medical evidence rather than credit.
At trial the plaintiff relied on the reports of orthopedic surgeon Dr Endrey-Walder to link the two accidents. Dr Endrey-Walder's opinion was that the rolling of the plaintiff's foot caused a traction injury to the sural nerve. Dr Endrey-Walder had provided this opinion in his report dated 31 March 2014, a time prior to the date the offer was made. Dr Endrey-Walder further opined the nerve damage was caused by a soft tissue injury rather than the fracture. KAH's expert Dr Sharwood, agreed that numbness over the lateral part of the foot can be caused by a traction injury. Both doctors agreed the plaintiff suffers from chronic pain in the injured foot. The Court preferred the opinion of Dr Sharwood over Dr Endrey-Walder. In my judgment Jackson v KAH Australia Pty Ltd t/as Bayview Boulevard Sydney [2017] NSWSC 747 at [140]-143], I accepted KAH's evidence that the sural nerve played no role in the plaintiff's fall. I concluded that the sural nerve is on the top of the foot and as the sole of the foot is concerned with standing and walking, the sural nerve could not affect standing and walking. Shine says that many of these issues only became clear at the expert conclave.
While the Court accepted the opinion of Dr Sharwood, and did not accept the opinion of Dr Endrey-Walder, the relevant question the Court must now ask is whether it was unreasonable for the plaintiff to rely upon the opinion of Dr Endrey-Walder. Shine submitted that it was not unreasonable for the plaintiff to rely on the opinion of Dr Endrey-Walder, in particular at the time the offer was sent made (15 June 2015).

KAH's submissions

KAH submitted that firstly, there is no evidence that this is in fact what had occurred and there is no evidence from the plaintiff or her solicitor to explain why the offer of compromise was rejected; secondly, in most cases, there is a disputed issue of fact and, as a consequence, there is difficulty in predicting the result of a trial. In practical terms, to accede to the plaintiff's submissions would entitle every plaintiff and every defendant to avoid the consequence of a Calderbank offer by pointing to a contested issue of fact. According to KAH, to adopt such an approach would be contrary to ss 56(1) and (2) of the Civil Procedure Act as those sections inform s 98 of the Civil Procedure Act. It would significantly undercut the important public policy of encouraging settlement of disputes and encouraging litigants to give serious consideration to the settlement of proceedings: see Ticket v Trifleska Pty Limited (1990) 25 NSWLR 353 at [354]. KAH submitted that this submission cannot provide a principled basis to find the plaintiff acted reasonably in rejecting KAH's offer, particularly absent evidence, and nor could it displace the other matters, referred to earlier, that demonstrate the plaintiff unreasonably failed to accept KAH's offer. Finally, KAH says that the plaintiff was in the best position to assess the strength of her case. In declining to accept KAH's offer and not making any subsequent attempt to resolve the proceedings, the plaintiff undertook the risk of litigation and the consequences that flow from that risk, including not bettering KAH's offer.
However, firstly, Dr Endrey-Walder gave no ground during the conclave on the key medical issue and, secondly, even if that were right, then if there was any substance to the submissions, then the plaintiff presumably at that time would have sought to negotiate with the defendant. As it happens, the plaintiff made no offers to settle the case after June 2015 and the submission made by Shine simply emphasises that these matters had absolutely nothing to do with the plaintiff's decision to reject KAH's offer.

Conclusion

At the hearing, the plaintiff's creditability was seriously in issue.
In my earlier judgment, I stated at [15]: "15 … I carefully observed the plaintiff give evidence and while she was cross examined at length. Overall, I have reached the conclusion that the plaintiff was tailoring her evidence, so as to bolster her claim for damages. I shall refer to a number of examples where the plaintiff gave unsatisfactory evidence. I have reluctantly come to the conclusion that her evidence was unreliable and unless corroborated by independent evidence (other than her current partner John Kleeman) I have approached her evidence with caution."
By that I meant the whole of the plaintiff's evidence.
Whether or not Dr Endrey-Walder's evidence was accepted or not is not to the point. The plaintiff was always going to have difficulty with having her evidence accepted by this Court. Particularly in proving a significant loss of earning capacity, both past and future. She lacked wage records from her work at Hindsight Reality. Her income returns from 2008 and 2012 revealed that prior to the accident she earned a modest amount each year. Final year ending Taxable income 2008 $10,999 2009 $3,389 2010 $3,738 2011 $3,476

Her plans for the future can best be described as aspirational and not based on any real evidence. In these circumstances, it is my view that on 15 June 2015, the plaintiff had the opportunity to evaluate her case and she chose to reject the offer of compromise. In the circumstances, at that time, it was unreasonable for the plaintiff to reject the offer of compromise. The plaintiff had medical evidence from both parties. KAH's medical reports did not support her claim.

Summary

The offer of compromise dated 15 June 2015 identifies the claim, the amount of a monetary judgment that is not expressed to be inclusive of costs and bears a statement to the effect that the offer is made in accordance with UCPR 20.26. This offer was not accepted by the plaintiff. The offer was genuine and it was unreasonable for the plaintiff not to accept the offer when it was made on 15 June 2015. The plaintiff has obtained a judgment on the claim no more favourable to her than the terms of the offer. By operation of the UCPR 20.26 the plaintiff is entitled to an order against KAH for costs in respect of the claim, to be assessed on the ordinary basis up to the time from which KAH became entitled to costs, that is 15 June 2015. On 16 June 2015, KAH is entitled to an order against the plaintiff for its costs on an indemnity basis.
I make an order that KAH is to pay the plaintiff's costs in respect of these proceedings on an ordinary basis up to and including 15 June 2015 and from 16 June 2015 the plaintiff is to pay KAH's costs assessed on an indemnity basis.

Gross sum costs

KAH seeks a gross sum costs order in the amount of $140,000. Shine concedes this Court has power to make a gross sum costs order.
While Shine disputes KAH's entitlement to the orders it seeks, it does not dispute firstly, the mathematical calculation; secondly, the quantum of legal costs incurred; and finally, the methodology KAH has used to calculate the figure of $140,000.
The power of the Court to order "a specified gross sum instead of assessed costs" is contained in s 98(4)(c) of the Civil Procedure Act.
The purpose of a gross sum costs order is to avoid the expense, delay and aggravation of a protracted costs assessment: see Sherborne Estate (No 2): Vanvalen v Neaves (2005) 65 NSWLR 268, 275, Palmer J at [38].
A gross sum costs order is also appropriate in cases where the party obliged to pay the costs would not be able to meet a liability of the order likely to result from the assessment, the probable "inability to pay a costs order will usually provide a proper basis for the making of a s 98(4)(c) order. If the unsuccessful party ordered to pay costs is unlikely to be able to pay the amount of costs ordered then the successful party is further aggravated by having to fund the additional costs of taxation, those costs also being unrecoverable": Uber BV & Anor v Howarth (No 2) [2017] NSWSC 889, Slattery J at [21]; Harrison v Schipp (2002) 54 NSWLR 738, Giles JA at [21]; Hamod v NSW [2011] NSWCA 375, Beazley JA at [817] (with Giles and Whealy JJA agreeing). While there were assertions made by the plaintiff that she owned a residential unit (but no evidence to substantiate this) the plaintiff gave evidence at trial that she was unemployed. On the balance of probabilities I find it is most likely that the plaintiff does not have the means to pay an adverse costs order.
The Court will only make a gross sum costs order if it can do so fairly between the parties, and that includes sufficient confidence in arriving at an appropriate sum on the materials available: Harrison v Schipp (2002) 54 NSWLR 738, Giles JA at [22]; Colquhoun v District Court of New South Wales (No 2) [2015] NSWCA 54, Beazley P, Barrett and Leeming JJA at [6].
In Chaina v Presbyterian Church (NSW) Property Trust (No. 26) [2014] NSWSC 1009, Davies J at [50(c)] and [51] stated: "[50] I have taken into account the following matters in concluding that a specified gross sum for costs should be ordered: … (c) The fact that the Plaintiffs are unrepresented, and are likely to remain unrepresented through any costs assessment process. The difficulties that attended the hearing of the substantive proceedings when the Plaintiffs were unrepresented were significant. The position would be magnified in any costs assessment process, not the least reason for which would be that the Plaintiffs are unlikely to be able to engage any form of advisor to assist them through the process; … [51] When assessing the costs for the purpose of making a gross sum order a broad brush approach may be taken: Zepinic v Chateau Constructions (Aust) Ltd (No. 2) [2014] NSWCA 99 at [31] and [38]; Hamod v New South Wales (No 13) [2009] NSWSC 756 at [31]; see also Hamod at [819]-[820] and Young v Hones (No. 3) [2014] NSWSC 499 at [28]-[30]."
In Chaina, Davies J at [56(b)] continued "As a broad rule of thumb, a successful party will recover 70% to 80% of costs assessed on the ordinary basis."
From the evidence of the partner with carriage of the matter, Mr Hawkes and expert reports from Valerie Higinbotham, a qualified costs consultant, dated 19 July 2017 I am satisfied firstly, that I can fairly and confidently reach an appropriate costs sum on the material; and secondly, there is material available and upon which I can reach an appropriate estimate of costs that is logical, fair and reasonable.
KAH's affidavit evidence sets out the costs incurred from 16 June 2015 include (Aff, Hawkes 21/7/2017): 1. A breakdown and summary of the professional costs incurred - namely $64,020.40, as well as a schedule of the specific nature of the costs incurred; 2. A breakdown and summary of the disbursements incurred - namely $97,493.28, as well as annexing the tax invoices to support the disbursements; (Total $161,513.68) 1. That the professional costs and disbursements have been paid by or on behalf of the defendant; 2. An identification of the rates charged by the solicitors who performed work and the reasonableness of the rates; 3. That the costs and disbursements claimed are fair and reasonable, reasonably incurred and carried out in a reasonable manner; 4. There is independent expert evidence attesting to the fairness and reasonableness etc of the amounts claimed and an opinion on what the outcome of any assessment might be (in the order of $150,000; 5. The defendant is only seeking an amount that, in reality, is around 75% of what it has an entitlement to in the event the costs order sought is made. That is, KAH forgoes any entitlement to interest on any costs and disbursements it has paid. This amounts to significant "discounting" and emphasises the reasonableness of the sum sought: see Uber BV & Anor v Howarth (No 2) [2017] NSWSC 889, Slattery J at [41]-[45]; 6. Further, on 29 June 2017, the solicitors for KAH wrote to the solicitors for the plaintiff relevantly stating: "Once the orders that our client seeks have been made by the Court (hopefully with your client's consent), to avoid further cost and expense our client offers to resolve this claim in its entirety on the following terms 1. The plaintiff's liability to the Defendant arising from the orders of the Court is agreed at $94,533.05; and 2. Each party is to bear its/her own legal costs of the proceedings. … If this offer is not accepted, our client reserves the right to approach the Court for a fixed sum order for its costs to avoid the expense of proceeding to formal assessment."
It is my view that it is most likely the plaintiff does not have funds to meet any costs order and she is unlikely to either participate or, alternatively, will be unrepresented throughout any costs assessment process; and KAH should not have to expend "further, probably irrecoverable, resources in a costs assessment": see Starr-Diamond v Talus Diamond (No 4) [2013] NSWSC 811, Slattery J at [15].
In the circumstances, it is my view that I can make a fair assessment of the costs to make a gross costs order. I assess KAH's costs and disbursements at $140,000.

Set off

Shine concedes that this Court has power to make set off costs orders but argues that this Court does not have power to set off a costs order against a judgment as there appears to be no provision in either the Civil Procedure Act or the UCPR to set off a costs order against a judgment.
Section 90 of the Civil Procedure Act reads: "90 Judgments generally (cf Act No 52 1970, section 91; Act No 9 1973, section 81) (1) The court is, at or after trial or otherwise as the nature of the case requires, to give such judgment or make such order as the nature of the case requires. (2) If there is a claim by a plaintiff and a cross-claim by a defendant, the court: (a) may give judgment for the balance only of the sums of money awarded on the respective claims, or (b) may give judgment in respect of each claim, and may give judgment similarly where several claims arise between plaintiffs, defendants and other parties."
The defendant's solicitors wrote to the plaintiff's solicitors advising them: "… we place you on notice that our client also intends to seek a specified gross sum costs order pursuant to section 98(4)(c) of the Civil Procedure Act."
The Court has inherent power to set off costs orders against other costs orders: see Australian Beverage Distributors v Evans & Tate Premium Wines Pty Limited [2006] NSWSC 560, White J at [68]; Lahoud v Lahoud [2012] NSWSC 284, Ward J at [79] ("Lahoud"); Deputy Commissioner of Taxation v Frangieh [2017] NSWSC 252, Harrison AsJ at [797] ("Frangieh"). This power, it is submitted, also exists in s 98(l)(b) of the Civil Procedure Act.
KAH submitted that the costs orders should be set off on the basis that setting off costs orders against other costs orders "seems so natural and equitable as not to need a special justification". It would be expected that a party objecting to the set off give some special reason for that objection": see Lockley v National Blood Transfusion Service [1992] 1 WLR 492, 497; Lahoud at [76]; and Frangieh at [798].
KAH contends that a further reason to set off costs orders against each other is that KAH's entitlement to costs will substantially exceed the plaintiff's. KAH submitted that in light of the quantum of damages the plaintiff recovered, the costs payable by it will be governed by the Legal Profession Uniform Application Act 2014 (NSW) with the effect that the plaintiff's costs (excluding disbursements) will be capped at $18,906.61 (20% of $94,533.05). From my reading of Schedule 1 Clauses 2(1)(a) and 2(4) of the Legal Profession Uniform Application Act 2014 (NSW) it is Shine that is not entitled to be paid or recover their legal services on an amount that exceeds $18,906.61 but Schedule 1 Clause 4(1) stipulates that this schedule does not apply to the recovery of costs payable as between a law practice and the practice's client to the extent that recovery of those costs is provided for by a costs agreement that complies with Division 4 of Part 4.3 of the Legal Profession Uniform Law 2014 (NSW). In contrast, KAH's costs are not so constrained.
Further, KAH says the costs payable pursuant to the costs orders proposed by the defendant, assuming one is made, should be set off against the judgment sum. The Court also has inherent power to so order: see Watkins Limited v Caicaria Pty Limited (1983) 78 FLR 417, Nader J at 430-431 ("Caicaria"); Gertig v Davies (2003) 85 SASR 226, Doyle CJ at 231-232 (with Mullighan J agreeing) ("Gertig"); Dodds v Premier Sports Australia Pty Limited (No 2) [2004] NSWSC 389, Palmer J at [38] ("Dodds"); Australian Beverage Distributors v Evans & Tate Premium Wines Pty Limited [2006] NSWSC 560, White J at [68]; and Lahoud at [72] and [79]. As previously stated, Shine argues that a set off cannot be made against an order for judgment. As the above cases establish, a set off can be made against a judgment sum.
KAH submitted that the exercise of the power to set off a costs order against a judgment is a matter of discretion, and the fact that a party who secures a judgment has a liability in costs to the other party that exceeds the judgment sum is a significant factor that informs the discretion to order a set off: see Caicaria at 430-431; Gertig at 231-232; and Dodds at [38]. That is the case here; the judgment sum is $94,533.05, and the costs that the defendant incurred following the offer of compromise served is in the order of $160,000. While I have the discretionary power to order a set off, I decline to do so as I do not accept that the plaintiff's costs on a party/party basis are limited to $18,906.61 and the plaintiff has equitable liens over judgment and the costs it has expended - see next topic. Therefore, I decline to make such an order.

Stay of proceedings

Alternatively, KAH seeks that the Court stay the judgment, pursuant to s 135 of the Civil Procedure Act, where a set off is in respect of the defendant's costs, "the appropriate course is to order the stay of the judgment, pending quantification of the costs, and then to permit the set off of the quantified amounts": see Mainteck Services Pty Limited v Stein Heurtey SA [2013] NSWSC 1165, Sackar J at [49].
As I have not made an order for a set off, I also decline to stay the judgment.

Solicitor's lien - Shine's costs agreement with the plaintiff

Shine claims it has an equitable lien over the judgment sum and it is entitled to receive that sum being $94,533.05. There is a copy of the cost agreement between Shine and the plaintiff in evidence (Aff, Sharron Vogel 6/11/2017). Clause 5 contains a standard conditional cost agreement clause with a headed "We will act on a No-win, no-fee basis". Clause 8 states the plaintiff is liable to pay Shine for disbursement it incurs. Clause 10 states the plaintiff is liable to pay Shine's solicitor/party costs in addition to any costs recovered as a result of a cost order. Clause 13 provides that the plaintiff has irrevocably authorised Shine to receive any money awarded to her and use the money to pay its professional costs and disbursements. An authority to receive is in evidence. Shine submitted that it was acting on the basis that it would recover legal costs and disbursements from any judgment sum and that part of the standard conditional costs agreement clause. Shine's solicitor deposed that Shine's costs of acting for the plaintiff amounts to the sum of $204,090.59. (Aff, Vogel 12/2/2017).

Shine's submissions

Shine claims that it has an equitable lien over any judgment sum the plaintiff is entitled to receive. This type of lien is well known and referred to as a "fruits of litigation" lien and is self explanatory. It exists when one party has an interest in the amount received or awarded as a result of litigation: see Goldberg v Beckett (2015) NSWSC 1966 which contains a summary of the relevant principles.
A lien right will exist over money recovered through obtaining judgment in litigation. The right exists over both the amount of judgment in favour of the client and the amount of the costs order obtained on behalf of the client: see Twigg v Keady (1996) 135 FLR 257. It exists over money which is owed to the client or paid into court. It is not necessary that the solicitor still act for the client. The quantum of the lien is equivalent to the amount of money properly owed by the client, whether that is ascertainable by the cost agreement or through taxation of a bill of costs. However if taxation is necessary the solicitor's right exists in the fund prior to taxation: Roam Australia Pty Ltd v Telstra Corporation Ltd (1997) FCA 980.

KAH's submissions

KAH submitted that the position taken by Shine is that the lien would only exist if, by final orders, the plaintiff has an entitlement to receive money by way of damages or costs that is, money actually recovered or will be recovered referred to Firth v Centrelink [2002] NSWSC 564; (2002) 55 NSWLR 451 and Abbott v Pilot Development Corporation Pty Limited [2006] NSWSC 1178. The position taken by Shine is that, having accepted the reasonableness of KAH's costs claimed of $140,000, those costs exceed any costs payable to the plaintiff namely the sum of $36,665.19 being the total of the capped costs and the disbursements and the judgment sum of $94,533.05. (Aff, Hawkes 21/7/2017; Aff Vogel, 12/12/2017). In this situation, KAH submitted that no lien can arise.

Consideration

In Gadens Ridgeway v Paroulakis (1992) 15 Fam LR 586, Nygh J at 592 (citing Halsbury's Laws of England, 4th ed, vol 44, "Solicitors", para 236) sets out what the nature of a fruits of the action lien is. Nygh J stated: "… only a right to ask for the court's intervention for the solicitor's protection when, having obtained judgment for his client, he finds that there is a probability of the client depriving him of his costs. It is a right to ask the court to charge the property in favour of the solicitor and until that is done the solicitor has no right to the money."
In Firth, Campbell J referred to Abbott trading as Piper Alderman v Pilot Development Corporation Pty Limited (in liq) [2006] NSWSC 1178 at [5]; Goldberg v Beckett [2015] NSWSC 1966. Campbell J stated at [35]: "35 The authorities establish the following propositions concerning this right of the solicitor: (a) The solicitor's right exists over money recovered through obtaining judgment in litigation, and also over money recovered through the settlement of litigation: Carew Counsel Pty Ltd v French [2002] VSCA 1 at [33]; Roam Australia Pty Ltd v Telstra Corporation Ltd [1997] FCA 980, Lehane J, 22 September 1997, unreported at 4. (b) The solicitor's right exists over both the amount of a judgment in favour of the client, and the amount of an order for costs in favour of the client: In The Estate of Fuld (No 4) [1968] P 727 at 736; Twigg v Keady (1996) 135 FLR 257 at 266 - 267 per Finn J; In Re Blake; Clutterbuck v Bradford [1945] Ch 61 (a case concerning a statutory charging order rather than a lien arising in equity's exclusive jurisdiction, but dependent on the same principle as the equitable right - see paragraph 44 below). (c) It exists over money which is in the possession of the solicitor, and also over money which is in court (In Re Meter Cabs [1911] 2 Ch 557 at 562) and money which is owed to the client but not paid into court (In The Estate of Fuld (No 4) [1968] P 727; Re de Groot [2001] 2 Qd R 359 at 375) (d) The solicitor need not be still acting for the client at the time that the money was recovered: In The Estate of Fuld (No 4) [1968] P 727; Kelso v McCulloch (Supreme Court of NSW, Young J, 24 October 1994 unreported); Twigg v Keady (1996) 135 FLR 257 at 289 per Kay J; Roam Australia Pty Ltd v Telstra Corporation Ltd [1997] FCA 980, Lehane J, 22 September 1997, unreported at 4 (e) For the right to arise it must be shown that there is a sufficient causal link between solicitor's exertions and the recovery of the fund of money: Roam Australia Pty Ltd v Telstra Corporation Ltd [1997] FCA 980, Lehane J, 22 September 1997, unreported at 4 - 5; Carew Counsel Pty Ltd v French [2002] VSCA 1 at [33]. (f) The quantum of money for which the solicitor has the equitable right is the amount which is properly owing to the solicitor by the client, whether that amount be ascertained by taxation of a bill of costs, or assessment, or pursuant to a costs agreement: Roam Australia Pty Ltd v Telstra Corporation Ltd [1997] FCA 980 (Lehane J, 22 September 1997, unreported at 4). In relation to those situations where taxation is necessary to ascertain the quantum owing to the solicitor, the solicitor's right exists in the fund prior to the occurrence of the taxation (Johns v Cassel (1993) 6 BPR 13,134 at 3,136 per Hodgson J; Twigg v Keady (1996) 135 FLR 257 at 289 per Kay J; In The Estate of Fuld (No 4) [1968] P 727 at 740; Roam Australia Pty ltd v Telstra Corporation Ltd [1997] FCA 980 (Lehane J, 22 September 1997, unreported at 6). (g) The solicitor's equitable right exists before the court is asked to intervene to protect it; it "arises immediately upon the recovery of monies through the exertions of the solicitor": Carew Counsel Pty Ltd v French [2002] VSCA 1 at [33]; if the lien is over the proceeds of an order for costs, it comes into existence at the time of making of that order for cost: Phillipa Power & Associates v Primrose Couper Cronin Rudkin [1997] 2 Qd R 266; Kison v Papasian (1994) 61 SASR 567. If the lien is over the proceeds of a settlement, it arises when the settlement agreement is entered into: Re de Groot [2001] 2 Qd R 359 at 368. (These statements concern when the lien comes into existence as an item of present property - they are not concerned with the ability of the solicitor to deal with the rights under the lien as future property before the fund is in existence.) (h) The right of the solicitor is one which the solicitor can enforce against the client, entitling the solicitor to an injunction to prevent the payment of the fund to the client without notice to the solicitor until such time as the quantum of the solicitor's entitlement to be paid from the fund is ascertained: In The Estate of Fuld (No 4) [1968] P 727. If the quantum of the solicitor's entitlement has been ascertained, the solicitor is entitled to an order that the amount of his entitlement be paid to him from the fund, notwithstanding opposition from the client: Leamey v Heath [2001] NSWSC 1095 (Campbell J, 22 November 2001, unreported). (i) The right can also be enforced against people other than the client, in certain circumstances. When the money recovered takes the form of a debt owed to the client, which has been assigned, the right of the solicitor will prevail over the rights of an assignee of the debt, save where the assignee is a bona fide purchaser for value without notice: Re de Groot [2001] 2 Qd R 359. (If the assignee is a bona fide purchaser for value without notice, it may be that priorities between the solicitor's right and the right of the assignee are to be determined in accordance with the rule in Dearle v Hall, (see Meagher, Gummow & Lehane, Equity Doctrines and Remedies , 3rd edition, at [819]ff) or it may be that the court considers who, of the solicitor and the assignee, has the superior equity - Re de Groot [2001] 2 Qd R 359 at 368-376 - but it is not necessary for me to consider that matter further.) … (m) If the money recovered is held in the solicitor's trust account, and the solicitor is served with a garnishee notice, issued to enforce a debt which the client owes to another person, the garnishee notice is not effective to attach the money in the trust account, to the extent that the solicitor has a lien over it: Phillipa Power & Associates v Primrose Couper Cronin Rudkin [1997] 2 Qd R 266. Likewise if the money recovered is held by a third party, and a garnishee notice is served on that third party, the solicitor's lien prevails over the garnishee notice: Dallow v Garold; Ex parte Adams (1884) 14 QB D 543."
Shine has acted for the plaintiff since these proceedings were commenced, until judgment was handed down. It was instrumental in bringing this litigation to a conclusion. There is also a causal link between the work done by the solicitor and the ultimate judgment that KAH pay the plaintiff the sum of $94,533.05 and the order in the plaintiff's favour that she is entitled to the party/party costs on an ordinary basis up to 15 June 2015. Up until 15 June 2015 (the date of the offer of compromise) Shine's solicitor/client costs in relation to costs totalled $96,410.72 (inclusive of GST) compromising professional fees, disbursements and barrister's fees that have been paid. (Aff, Vogel 12/12/2017 [4]). These circumstances are such as to satisfy the requirements that must be met for a fruits of action lien to attach to the judgment moneys and the solicitor/client costs for acting for the plaintiff that are subject to a costs agreement: see Firth at [35(f)].
KAH has also had an award of costs made in its favour. It is entitled to its costs on an indemnity basis from 16 June 2015 to judgment. I have not made an order for set off. No submissions have been made in relation to the priority between Shine's equitable lien and KAH's order for indemnity costs. I have been unable to find authority on this topic. KAH's costs have been assessed at $140,000. In conclusion Shine has an equitable lien over the plaintiff's judgment moneys in the sum of $94,533.05 and its solicitor/client costs that are the subject to a costs agreement.
So far as the parties' submissions on costs are concerned, Shine was successful on some issues and KAH was successful on other issues. In the exercise of my discretion, each party should pay its own costs. Hence, the order I make is that so far as submissions on costs are concerned, KAH and Shine are to pay their own costs.

The Court orders that: (1) The costs order made on 23 June 2017 is vacated and in lieu thereof I make an order that the first defendant is to pay the plaintiff's costs in respect of these proceedings on an ordinary basis up to and including 15 June 2015 and from 16 June 2015, the plaintiff is to pay the first defendant's costs assessed on an indemnity basis. (2) The first defendant's costs are assessed at a gross sum of $140,000. (3) In so far as submissions on costs are concerned, the first defendant and the second defendant are to pay their own costs.

The Court declares that: (4) The second defendant has an equitable lien over the plaintiff's judgment moneys in the sum of $94,533.05 and its solicitor/client costs for acting for the plaintiff.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 28 February 2018

Legal Profession Uniform Application Act 2014(NSW)

(1992) 15 Fam LR 586

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Judgment (25 paragraphs)

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Cases Cited (37)