John Byrnes & Associates (Legal) Pty Ltd v Quinn

Supreme Court of NSW|2021-08-23|Before: Rees J, Beazley P, Basten JA, Beazley JA, As Giles JA

Solicitors: John Byrnes & Associates (Legal) Pty Limited (Plaintiff) File Number(s): 2020/143722

Judgment

HER HONOUR: On 20 July 2021, I gave summary judgment for the plaintiff law firm: John Byrnes & Associates (Legal) Pty Ltd v Quinn (No 2) [2021] NSWSC 874. I ordered that the first defendant, being the law firm's former client, Robert Quinn, pay certain only of the plaintiff's costs, being the plaintiff's filing fees, its costs of the hearing on 14 December 2020 and its costs from 22 December 2020 on.
The law firm now seeks a specified gross sum costs order in respect of these costs and relied on an affidavit by its solicitor, John Byrnes. Mr Byrnes is the sole director and principal of the plaintiff law firm. Mr Byrnes said that the law firm's costs of the proceedings were $30,838.78 exclusive of GST. After 'carving out' the specific items of those costs which I had ordered be paid by Mr Quinn, the law firm's costs were $18,188.78 exclusive of GST. The law firm further discounted that amount to $15,000 plus GST, in respect of which a specified gross sum costs order was sought.
The client relied on his affidavit which by and large re-agitated a number of subjects raised on previous occasions and the subject of earlier judgments.

Whether appropriate to make lump sum costs order

Section 98(4)(c) of the Civil Procedure Act 2005 (NSW) provides: Courts powers as to costs 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: … (c) a specified gross sum instead of assessed costs …
A specified gross costs order involves a departure from the usual process by which costs are assessed in accordance with the statutory procedures now found in the Legal Profession Uniform Law (NSW): eInduct Systems Pty Ltd v 3D Safety Services Pty Ltd (No 2) [2015] NSWCA 422 at [8] per Beazley P and Basten JA. The power to make a specified gross sum costs order should only be exercised when the Court considers that it can do so fairly between the parties, and that includes sufficient confidence in arriving at an appropriate sum on the materials available: Hamod v State of New South Wales [2011] NSWCA 375 at [813] per Beazley JA (Giles and Whealy JJA agreeing).
As Giles JA noted in Harrison v Schipp (2002) 54 NSWLR 738; [2002] NSWCA 213 at [21]: The power conferred by [section 98(4)] is not confined, and may be exercised whenever the circumstances warrant its exercise. It may appropriately be exercised where the assessment of costs would be protracted and expensive, and in particular if it appears that the party obliged to pay the costs would not be able to meet a liability of the order likely to result from the assessment …
It is a relevant consideration whether "the financial capacity of the party liable to pay costs is such that the additional cost of taxation will impose a significant burden on the party in whose favour costs are ordered without real prospects of recovering those costs": Dunstan v Human Rights and Equal Opportunity Commission (No 3) [2006] FCA 916 at [24], citing Hadid v Lenfest Communications Inc [2000] FCA 628; Sparnon v Apand Pty Ltd [1998] FCA 164; Sony Entertainment (Australia) Ltd v Smith [2005] FCA 228; (2005) 215 ALR 788.
As I understand it, including from what Mr Quinn has told me on each occasion that I have heard the matter, his financial circumstances are limited. It is unclear whether Mr Quinn has the ability to pay the plaintiff's costs. Placing an additional burden on the plaintiff to undertake a costs assessment process may be for no useful purpose. This favours the award of a lump sum costs order, thereby reducing wasted costs on any unnecessary costs assessment. I consider that this is an appropriate case to specify a gross sum instead of putting the plaintiff to the further time and expense involved in an assessment of its legal costs.

Fixing a sum

In Idoport Pty Ltd v National Australia Bank Ltd [2007] NSWSC 23, Einstein J summarised the principles which inform the exercise of the discretion to specify a gross sum, at [9]: … ii. the touchstone requires that the Court be confident that the approach taken to estimate costs is logical, fair and reasonable: Beach Petroleum at [16]; iii. the fairness parameter includes the Court having sufficient confidence in arriving at an appropriate sum on the materials available: Harrison v Schipp (2002) 54 NSWLR 738, per Giles JA at [22] …; … iv. a gross sum assessment, by its very nature, does not envisage that a process similar to that involved in a traditional taxation or assessment of costs should take place: Harrison v Schipp at [22]; v. the gross sum "can only be fixed broadly having regard to the information before the Court": Beach Petroleum at 124; [In Hadid v Lenfest Communications Inc [2000] FCA 628 at [35] it was said that the evidence enabled fixing a gross sum "only if I apply a much broader brush than would be applied on taxation, but that … is what the rule contemplates".] vi. nevertheless the power to award a gross sum must be exercised judicially, and after giving the parties an adequate opportunity to make submissions on the matter: Leary v Leary [1987] 1 WLR 72 at 76, and Beach Petroleum NL v Johnson (No 2) (1995) 57 FCR 119 at 120; vii. In terms of the necessity for the approach taken to be logical, fair and reasonable, Von Doussa J in Beach Petroleum NL & Anor v Johnson & Ors (No 2) (1995) 57 FCR 119, put the matter as follows, at [16]: "On the one hand the Court must be astute to prevent prejudice to the respondents by overestimating the costs, and on the other hand must be astute not to cause an injustice to the successful party by an arbitrary "fail safe" discount on the cost estimates submitted to the Court: Leary v Leary at 265 …"
His Honour's summary has been cited with approval in the Court of Appeal: Hamod at [793]. Beazley JA continued, at [816]: … the 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…
And at [820] (citations omitted): The costs ordered should be based on an informed assessment of the actual costs having regard to the information before the court (for example, by relying on costs estimates or bills). The approach taken to estimate the costs to be ordered must be logical, fair and reasonable. This may involve an impressionistic discount of the costs actually incurred or estimated, in order to take into account the contingencies that would be relevant in any formal costs assessment.
Further, as Ball J explained in Baychek v Baychek [2010] NSWSC 987 at [11]: Implicit in this principle is that the gross sum bear a reasonable relationship to the actual costs of the party making the application, and to the costs that that party might reasonably be expected to recover on assessment. That means, among other things, that there must be a reasonable evidentiary basis for the order the court makes. That evidentiary basis is normally provided by the costs applicant in the form of an affidavit setting out the actual costs incurred and how they were calculated. Often, the evidence also includes evidence of the amount that is likely to be recovered on assessment.
The courts have typically applied a discount in assessing costs on a gross sum basis: Hamod at [814]. A "broad brush" approach is appropriate. To require the same or similar level of detail as in a formal costs assessment would defeat the purpose of the lump sum order: Kostov v Zhang (No 2) [2016] NSWCA 279 at [27] per Meagher and Payne JJA.
There is a problem, however. The plaintiff claims the costs referrable to the time expended by its principal, Mr Byrnes, in performing work for the proceedings. For the plaintiff to be entitled to these costs they must, at least, be costs "payable" within the definition of "costs" in section 3(1) of the Civil Procedure Act. The law recognises that an incorporated legal practice and its principal are separate legal entities. Thus, in theory, a company and its principal may enter into a legally binding agreement under which the principal performs legal services for the company at cost. The company will be entitled to recover the costs (insofar as they conform to the relevant basis of recovery) as long as there is a binding agreement under which the company is liable to pay the principal: Spencer v Coshott [2021] NSWCA 235 at [86] and [104] per Simpson AJA (Bell P and Emmett AJA agreeing); at [10] per Emmett AJA.
Here, there is no evidence of such an agreement. All I have are invoices prepared by the plaintiff for work undertaken by the principal, Mr Byrnes. There is no evidence that the plaintiff has a liability to pay the costs to Mr Byrnes. Further, whilst the fees rendered appear reasonable, the costs order made was for costs on the ordinary party and party basis, not on an indemnity basis. A 10% discount of the costs is more along the lines of an indemnity costs order.
Given these difficulties, I consider it appropriate to approach the matter differently. I will allow the plaintiff's court filing fees totalling $4,099 together with the claimed portion of counsel's fees, being $11,200 exclusive of GST, being $15,299 exclusive of GST, so say $15,000 plus GST.
For these reasons I make the following order: 1. Pursuant to section 98(4) of the Civil Procedure Act 2005 (NSW) order the first defendant to pay the plaintiff's costs of the proceedings in the gross sum of $15,000 plus GST.

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