Naro Investments Pty Ltd & Ors v Benjamin & Khoury Pty Ltd

Specified Gross Sum Costs Orders: History and Applicable Legal Principles

1. The applicable law in relation to specified gross sum costs orders and its historical basis may be shortly described.
2. The Court's power to make a specified gross sum costs order instead of assessed costs was first provided for in the New South Wales Supreme Court rules in 1970: Supreme Court Rules 1970. These rules were initially enacted as the Fourth Schedule to the Supreme Court Act 1970. Part 52, Rule 6(2)(c) of the Fourth Schedule was closely based on a rule to similar effect in the English Rules of the Supreme Court (revised in 1965), Order 62, Rule 9(4)(b): "Fractional or gross sum in place of taxed costs". One early example of the application of the English Rule is Silva v Czarnikow Limited (1960) 104 SJ 369 in which, after an action lasting eight days, the managing clerk for the defendant's solicitor estimated the total legal costs at over GBP 2,000 and the judge fixed under Order 62, Rule 9(4)(b) a gross sum in lieu of assessed costs at GBP 1,250.
3. But reported Australian case law on the topic of specified gross sum costs orders is scant until the early to mid-1990s, when in cases such as Beach Petroleum NL v Johnson (No. 2) (1995) 57 FCR 119; (1995) 135 ALR 160 (von Doussa J) ("Beach Petroleum") judges began more commonly to apply Australian rules that were analogous to the English Rules. Part 52A (Costs) was inserted into the Supreme Court Rules in 1994, which provided what had been Part 52, r 6(2): that the Court could make a specified gross sum costs order. This Part was repealed in 2005, upon the passing of the Civil Procedure Act 2005 and was replaced by the substantially similar s 98(4)(c).
4. But Courts have long exercised the power to fix a specified gross sum instead of assessed costs as part of the Court's broad inherent costs discretion, without any specific rules. One early example of the High Court of Australia exercising such inherent jurisdiction is Edgar & Walker v Mead (1916) 23 CLR 29; (1916) 23 ALR 259; [1916] HCA 70 in which Isaacs J (at 46) applied the practice which Jessel MR described and adopted in Willmott v Barber (1881) 17 Ch D 772: "But taking everything into consideration, including the several findings in favour of the respective parties, and realizing the desirability of putting an end to unnecessary further expense, I act on the principle laid down or recognized by the Court of Appeal in Willmott v. Barber. It was there stated that the discretion of the Judge as to costs is very large and extends even to the course which Jessel M.R. said he sometimes adopted, and generally found the parties were grateful to him for so doing. He thus described the course: "fix a definite sum for one party to pay to the other, so as to avoid the expense of taxation, taking care in doing so to fix a smaller sum than the party would have to pay if the costs were taxed."
5. From this early example of the exercise of this jurisdiction, Willmott v Barber, the Court highlighted that one guide in fixing a specified gross sum was that the Court should "take care to fix a smaller sum than the party would have to pay if the costs were taxed."
6. This Court's specified gross sum costs jurisdiction is now embodied in Civil Procedure Act, s 98(4)(c) which relevantly provides as follows: "(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."
7. It is to be noted that the jurisdiction is only available before a matter is referred for the assessment of costs. Referral to costs assessment has not occurred in this case, so the specified gross sum costs jurisdiction is available.
8. The principles for the making of specified gross sum costs orders instead of assessed costs are well settled. Civil Procedure Act, s 98(4)(c) is expressed in general terms and is not limited to cases of a particular type: Australasian Performing Rights Assoc Ltd v Marlin [1999] FCA 1006 (Burchett J). The power to award a Civil Procedure Act, s 98(4)(c) specified gross sum instead of assessed costs is exercised whenever circumstances warrant its exercise; the purpose of the rule is to avoid the expense, delay and aggravation arising out of taxation: Beach Petroleum.
9. 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: Harrison v Schipp (2002) 54 NSWLR 738; [2002] NSWCA 213 ("Schipp") at [21] (Giles JA) and Hadid v Lenfest Communications Inc [2000] FCA 628 ("Hadid") (Lehane J).
10. The specified gross sum can be fixed under s 98(4)(c) by the application of what has been described as a "broad brush" approach, having regard to all the information available to the Court: Schipp at [22] and Hadid at [27] and Penson v Titan National Pty Ltd (No.3) [2015] NSWCA 121 at [7] and [25]. The approach taken to the estimation of costs must be "logical, fair and reasonable" and the powers should only be exercised when the Court considers it can do so "fairly between the parties, and that includes sufficient confidence in arriving at an appropriate sum on the materials available": Schipp at [22] per Giles JA.
11. A definitive statement of the applicable law in this state appears in Hamod v State of New South Wales [2011] NSWCA 375 at [813] to [820] ("Hamod"). Some of the relevant principles stated there are: that before exercising the power the Court should be confident that the approach taken to estimating costs is fair, logical and reasonable; that the terms of s 98(4), together with the more general considerations reflected in Civil Procedure Act, ss 56(1), 57(1)(d) and 60, suggest the factors that merit particular consideration include the degree of any disproportion between the issue litigated and the costs claimed and the complexity of proceedings in relation to their cost; that the power may also be exercised where a party's conduct has unnecessarily contributed to the costs of the proceedings, especially where the costs incurred have been disproportionate to the result of the proceeding; that the assessment of any lump sum to be awarded must represent a review of the successful party's costs by reference to the pleadings and complexity of the issues raised on the pleadings; the interlocutory processes; the preparation for final hearing and the final hearing; that in the exercise of its discretion, the Court is not required to undertake a detailed examination of the kind that would be appropriate to taxation or formal costs assessment; that 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); and that the approach taken to estimate the costs to be ordered 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.
12. I have previously summarized the law regarding the powers available in Civil Procedure Act, s 98(4)(c) in Simone Starr-Diamond v Talus Diamond (No. 4) (2013) 272 FLR 414; (2013) 224 A Crim R 523; [2013] NSWSC 81 and Bahamad v Wong [2020] NSWSC 991.

Overview of the Costs Claimed

1. The solicitors claim they incurred $276,860.57 in costs (inclusive of GST) in these proceedings up to 16 April 2021. But for reasons which are explained below they concede that they have only incurred $108,389.67 (inclusive of GST) in assessable costs. The solicitors break down their assessable costs into the following two time periods: 1. $37,383.10 in costs incurred from 12 June 2019 to 13 July 2020, when they were self-represented ("the self-represented period"); and 2. $71,006.57 in costs from 14 July 2020 to 16 April 2021, when they were represented by Robert and Partners Lawyers ("the represented period").
2. The solicitors' Costs Motion also seeks a specified gross sum costs order in respect of the costs of the Costs Motion, though the solicitors do not seek a specific quantum of those costs. Instead, prayer 2 of the Costs Motion seeks "…such amount as determined by the Court pursuant to section 98(4)". Prayer 3 seeks, "in the alternative to 2 above, costs."
3. The Costs Motion raises three questions: (1) should a specified gross sum costs order be made instead of assessed costs; and if so, (2) what should be the quantum of that specified gross sum costs order; and (3) what costs order should be made on the Costs Motion.

Should a Specified Gross Sum Costs Order Be Made Instead of Assessed Costs?

1. In support of the Costs Motion upon which they move, the Court notes that the solicitors read Mr Roberts' affidavit of 16 April 2021. Mr Roberts has been a legal practitioner since 2013 and became a principal of his firm in 2018. Exhibited to his affidavit is Exhibit CR-1. The Court is satisfied that Mr Roberts has considerable depth of experience in relation to costs assessments and is well qualified to speak to the probable outcome of a costs assessment were one to occur in this case. Mr Roberts' affidavit sets out a detailed account of, explanation of and breakdown of, the professional costs and disbursements that have been incurred by the solicitors. It gives satisfactory information to the Court to exercise the specified gross sum cost jurisdiction. The Court accepts Mr Roberts' evidence.
2. The solicitors have discounted their claim for costs. Mr Roberts deposes and the Court accepts that in respect of their claim for assessable costs of $108,389.67 that Robert and Partners Lawyers ordinarily would obtain a recovery of costs on a party/party basis of between 75% and 85% which would be in the range $81,292.25 to $92,131.22 excluding GST. But the solicitors have reduced their claim to a specified gross sum of $77,000 (including GST) to cover both time periods, as Mr Roberts explains, "to bring this matter to an end". This represents a global discount of 29% to the assessable costs of $108,389.67 (including GST), or inversely, a recovery of 71% of assessable costs.
3. The solicitors' case is persuasive. The manner of the clients' conduct of this litigation has already forced the solicitors to incur unnecessary additional costs. The clients delayed in serving evidence, generating needless Court attendances (at which the clients did not always appear). The Court expressed its dissatisfaction with the clients' conduct during the proceedings when in order to secure the clients' compliance with the Court's orders, the Court made a guillotine order on 21 October 2019. Moreover, the clients did not follow through with proposed real property sales and prospective loans, causing further delays.
4. Up to the time the Costs Motion was filed there is no evidence that the clients have taken any steps to meet their substantial liability of $569,396.33 to the solicitors on the Court's orders made on 19 March 2021. Mr Roberts' evidence is that "there is a real risk that the clients will be unable to meet their liability to the [solicitors] for the judgment sum ordered, let alone the clients' additional liability for costs once quantified following assessment". This evidence is soundly based, and the Court draws the same conclusion from the underlying material in this case.
5. Costs orders are still outstanding against the plaintiffs in the primary litigation in which the solicitors acted for them: proceedings 2018/3614. This further indicates the probability that the clients will not be able to meet the costs of a costs assessment. And Naro has a paid up capital of only $24 and a poor ASIC credit score of 2 out of 850, and its long-standing defaults include not only the payment of monies under Court orders but under statutory demands. Moreover, real estate owned by the plaintiffs/cross-defendants and charged under the deed of settlement has been sold by a first mortgagee without any net proceeds being available to satisfy the solicitors' charges.
6. This dispute is already derived from the previous dispute between the solicitors and the clients about the quantum and legal costs. The plaintiffs and the solicitors agreed to a deed of settlement of their dispute but instead of performing the deed the clients commenced the present proceedings to dispute the deed. Disputes about the costs of proceedings, where the proceedings are themselves a dispute about assessable costs are a particularly apt exercise of the Court's exercise of specified gross sum costs jurisdiction.
7. Moreover the additional costs of a costs assessment are not insignificant. Mr Roberts says from his professional experience, and the Court accepts, that a costs assessment would incur additional costs of between $9,055 and $14,555 (excluding GST). To avoid this additional cost, the solicitors seek that gross sums be fixed instead of assessed costs for the following two principal reasons: "a. the prospect of recovering the amount ordered in favour of the Lawyers pursuant to the Judgment (excluding costs) from the Clients is low as explained later in this affidavit and in any event unlikely to be recovered in totality even if the Clients' property is sequestrated; b. the time and costs associated with the preparation and conduct of a costs assessment, given the amount sought by the Lawyers, is uneconomical for the reasons set out in this affidavit."
8. To these matters the Court would add the other matters mentioned in these reasons. No application for an assessment of costs has been made. And the respondents/clients consent to the Court considering the making of gross sum costs orders in Chambers.
9. In the Court's view, the making of a specified gross sum costs orders instead of assessed costs is the timely and cost-efficient course for the parties in this case. The relevant considerations strongly favour the making of such an order. The Court will make a specified gross sum costs order instead of assessed costs under Civil Procedure Act, s 98(4)(c).
10. The circumstances identified here that prompt the Court to specify a gross sum instead of assessed costs, also strongly imply that the costs of the Motion seeking that order should also be the subject of the fixing of a specified gross sum. Courts commonly fix a specified gross sum for both. That is the course that the Court will take here.

The Quantum of a Specified Gross Sum Costs Order

1. The clients have not put on submissions contesting particular items of the costs claimed by the solicitors. The Court will undertake analysis of the quantum claimed by the solicitors, divided into the self-represented period, the represented period, and then the costs of the Costs Motion.
2. The Self-Represented Period. The solicitors claim to have incurred $205,954.10 in actual costs for the self-represented period of 13 months. Mr Roberts sets out these costs in "Table 1", replicated below: Person Role Rates excluding GST Total including GST Michelle Castle Counsel $450/hr $30,937.10 Nicholas Condylis Junior Counsel $240/hr; $2,400/day $6,446 Benjamin & Khoury Solicitors Solicitors Varied $168,471 Total Incurred $205,854.10 Total Assessable Sum $37,383.10

1. During the self-represented period, the solicitors, with the aid of briefed counsel: prepared affidavits, drafted a Defence and an Amended Defence; put on evidence in reply; prepared for and attended directions hearings; communicated with the other side and put on submissions on a number of Motions.
2. Self-Represented Period: Solicitors' Fees. The solicitors concede they cannot claim any of their $168,471 in estimated billable fees for the period in which they represented themselves. This concession is made on account of the High Court's decision in Bell Lawyers Pty Ltd v Pentelow (2019) 372 ALR 555; [2019] HCA 29 ("Pentelow"), which was delivered some three months into the solicitors' self-representation period. The implication of this decision appears to have escaped their attention until some 10 months later.
3. Prior to Pentelow, when Australian legal practitioners were conducting litigation on their own behalf their recovery of legal costs was approved upon the principle that "an attorney regularly qualified is allowed to make the same charges for business done when [the attorney] sues or defends in person, as when [the attorney] acts as the attorney for another": London Scottish Benefit Society v Chorley [1881-5] All ER Rep 1111; (1884) 13 QBD 872, per Bowen LJ at 877. This was colloquially referred to as "the Chorley exception" in English case law, because it amounted to an "exception" from the normal rule that litigants in-person cannot recover their professional costs of representing themselves in litigation. In Pentelow, the Court held (at [57]) that the Chorley exception is not part of the common law of Australia.
4. The solicitors concede that because of Pentelow none of the estimated billable fees of $168,471 they incurred during the self-represented period are recoverable. This reduction does not constitute a voluntary discount on otherwise recoverable fees. Rather, the solicitors are barred by law from claiming these costs.
5. Self-Represented Period: Counsels' Fees. The High Court's decision in Pentelow does not change the fundamental principle that a party with the benefit of an order for costs is entitled to be indemnified for the costs and disbursements it has actually incurred in conducting the litigation. Disbursements such as court filing fees, counsel's fees and other such expenses will still be recoverable.
6. The solicitors argue they should recover their significant disbursements of counsels' fees in full for the self-represented period, namely counsels' fees in the sum of $37,383.10. This is comprised of $30,937.10 in fees issued by their senior junior counsel, and $6,446 in fees issued by junior counsel.
7. Almost all these fees are recoverable. A Court-appointed costs assessor would not always allow solicitors to recover counsels' fees in full as "counsels' fees are generally allowed at a costs assessment at close to 85 to 90 percent of what is claimed": Russo & Ors v Russo & Ors (No. 4) [2016] NSWSC 1133 at [24].
8. The Court will reduce counsels' fees by 15%. This discounts Ms Castle's fees by $4,640.57 to $26,296.53 and Mr Condylis' fees by $966.90 to $5,479.10. Therefore, the Court would order the clients to pay the solicitors' disbursements of counsels' fees for the self-represented period in the specified gross sum of $31,775.63 ($26,296.53 + $5,479.10) instead of assessed costs. This constitutes an 85% recovery of counsels' fees for the self-represented period.
9. The Represented Period. From 14 July 2020 to 16 April 2021 (the date of the Costs Motion), the solicitors retained Roberts and Partners Lawyers. For this nine-month period, the solicitors claim to have incurred $71,006.57 in costs associated with solicitors' fees, counsels' fees, mediation costs and disbursements. Mr Roberts sets out these costs in "Table 2", replicated below: Person Role Rates excluding GST Total including GST Christiaan Roberts Principal/Solicitor $450/hr $37,865.03 (including disbursements) David Smith Junior Counsel $300/hr; $2,500/day $11,137.50 Michael Elliot SC Senior Counsel $850/hr; $15,496.25 $7,500/day Dennis Wilson Mediator $2,750 Australian Dispute Resolution Centre $1,100 Mediation Room Hire Transcript Fees $961 (from start of proceedings) Infotrack searches $1,696.79 (from start of proceedings) Total Incurred / Total Assessable Sum $71,006.57

1. The Represented Period: Solicitors' Fees. The solicitors claim $37,865.03 in solicitors' fees (including disbursements) for the represented period. The entirety of the billable work was undertaken by Mr Roberts, a Principal solicitor at his firm, at the rate of $450/hour. While this is a reasonable hourly rate for a solicitor nine years post-admission, it is somewhat unusual for just one senior solicitor to undertake all legal work on a case given the higher applicable charge-out rate. But seniority implies greater efficiency and the overall quantity of work is not excessive.
2. The Court will discount the Robert and Partners Lawyers' fees by 15%, namely $5,679.75, such that the total for Roberts and Partners Lawyers is $32,185.28.
3. The Represented Period: Counsels' Fees. The solicitors also claim $15,496.25 in senior counsel's fees and $11,137.50 in junior counsel's fees for the represented period, totalling $26,633.75. For the reasons already addressed in the self-represented period, a 15% discount will be applied to each counsels' fees such that senior counsel's fees will be discounted by $2,324.44 to $13,171.81 and junior counsel's fees will be discounted by $1,670.63 to $9,466.87. This totals $22,638.68.
4. The Represented Period: Mediation Costs. The solicitors claim they have incurred the full price of both the mediator ($2,750) and the mediation room hire fee ($1,100). The clients have not yet paid their half share of these costs. The total cost of $3,850 is at the present time therefore an unrecouped outgoing of the solicitors and is fully recoverable as one of their disbursements.
5. Therefore, the total amount of a potential specified gross sum to be ordered instead of assessed costs for the represented period is $58,673.96 ($32,185.28 + $22,638.68 + $3,850). Therefore, the total amount of a potential specified gross sum to be ordered instead of assessed costs for both the unrepresented and the represented periods would be $90,449.59 ($31,775.63 + $58,673.96). The solicitors have indicated that they seek the recovery of $77,000 or such other amount as is determined by the Court. Judgment will be entered for the amount of $90,449.59.

The Costs of the Costs Motion

1. The solicitors have advanced little additional evidence about their separate costs of the Costs Motion. The state of the evidence is such that, applying the statements of principle in Schipp, the Court considers that it does not have sufficient confidence in arriving at an appropriate specified gross sum for the costs of the Costs Motion on the materials available. Some parts of the specified gross sum of $90,449.59 already relate to what appear to be disbursements incurred after the Court's first judgment. The Court will not make any additional orders for the costs of the Costs Motion.

Conclusions and Orders

1. For these reasons, the Court makes the following orders, notations and directions: 1. Note that with respect to the costs order in Order (3) of the Court's orders made on 19 March 2021 pursuant to Civil Procedure Act, s 98(4)(c) an order will be made for a specified gross sum instead of assessed costs; and 2. Note that pursuant to Order (1), there will be judgment for the defendant/cross-claimant against the plaintiffs/cross-defendants in the sum of $90,449.59 inclusive of the costs of the defendant/cross-claimant's Motion of 16 April 2021.

Amendments 22 September 2021 - [34] first line - "a" removed 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: 22 September 2021