Plaintiff v Defendant

1 On 13 September 2017, I entered judgment for the plaintiff for damages in this proceeding.[1] The plaintiff's application for the costs of the proceeding on an indemnity basis was, following an opportunity for the defendants to consider my reasons, not opposed.

2 The parties were unable to agree to a form of order. The plaintiff sought:

(a) payment of the plaintiff's costs on an indemnity basis in accordance with the terms of the retainer between the plaintiff and her legal representatives pursuant to s 40(2)(a) of the Defamation Act 2005 (Vic);

(b) payment of a gross sum instead of taxed costs pursuant to r 63.07(2)(c) of the Supreme Court (General Civil Procedure) Rules 2015 (Vic);

(c) certification of the fees for her counsel - Dr Matthew Collins QC, Ms Renee Enbom and Mr Justin Hooper of counsel; and

(d) certification of the witness fees of Ms Neradine Tisaj.

3 The defendants submitted that I should simply order that the defendants pay the plaintiff's costs of and incidental to the proceeding, including reserved costs, on an indemnity basis pursuant to s 40(2)(a) of the Defamation Act 2005 (Vic).

4 The matter was listed for argument and at the hearing the plaintiff sought not simply an order that costs be paid by a gross sum but also an assessment of the appropriate gross sum, filing material purportedly to assist the court to make that assessment. The defendants expressed surprise at the latter application and were not ready to respond on the issue of quantification. The defendants took issue that gross sum assessment was an appropriate approach, submitting that the court should make an order for costs and otherwise permit taxation under the Rules.

5 I have concluded that this is not a proper occasion to award costs by gross sum assessed by me and I will order costs substantially in the terms sought by the defendants. I will also make some observations that may assist in determining the reasonableness of costs to be claimed on taxation for the benefit of the parties and the Costs Court.

6 The following questions were raised in this application:

(a) should the Court awarded the plaintiff a gross sum costs order?

(b) should any such order be in accordance with the terms of the costs agreement between the plaintiff and her legal representatives, or should it be in accordance with the applicable scale?

(e) subject to the answers to each of the preceding questions, should the Court make specific findings regarding certain of the plaintiff's costs?

7 In summary, the plaintiff submitted for a gross sum costs order in this proceeding for the following reasons:

(a) given the history of the proceeding and the defendant's conduct, including that the defendant is now appealing the award of damages on 18 grounds, any taxation is likely to be protracted and expensive;

(b) a gross assessment of costs would be more cost effective in the circumstances of this case;

(c) taxation is likely to give rise to significant delay while a gross sum order can be made quickly;

(d) finally, the court can be confident that the approach taken to estimate the plaintiff's recoverable costs is logical, fair and reasonable.

63.07 Taxed or other costs provision

(1) Subject to this Order, where by or under these Rules or any order of the Court costs are to be paid to a party, that party shall be entitled to taxed costs.

(2) Where the Court orders that costs be paid to a party, the Court may then or thereafter order that as to the whole or any part of the costs specified in the order, instead of taxed costs, that party shall be entitled to -

(a) a portion specified in the order of taxed costs;

(b) taxed costs from or up to a stage of the proceeding specified in the order;

(c) a gross sum specified in the order instead of taxed costs;

(d) a sum in respect of costs to be determined in such manner as the Court directs.

9 Section 65C of the Civil Procedure Act 2010 (Vic) states:

65C Other costs orders

(1) In addition to any other power a court may have in relation to costs, a court may make any order as to costs it considers appropriate to further the overarching purpose.

(2) Without limiting subsection (1), the order may -

(a) make different awards of costs in relation to different parts of a proceeding or up to or from a specified stage of the proceeding;

(b) order that parties bear costs as specified proportions of costs;

(c) award a party costs in a specified sum or amount;

(d) fix or cap recoverable costs in advance.

(3) An order under subsection (1) may be made -

(a) at any time in a proceeding;

(b) in relation to any aspect of a proceeding, including, but not limited to, any interlocutory proceeding.

10 In Sheehan v Brett-Young,[2] by reference to Sunland Waterfront (BUVI) Ltd v Prudentia Investments Pty Ltd (No 3)[3] and ACN 074 971 109 v National Mutual Life Association of Australasia Ltd[4] I observed that:

Croft J identified the object of a gross sum costs order in lieu of taxed costs under this rule in Sunland Waterfront (BVI) Ltd v Prudentia Investments Pty Ltd (No 3). Croft J stated -

(i) The purpose of the sub-rule is to avoid the expense, delay and aggravation involved in protracted litigation arising out of taxation.

(ii) An order that costs be assessed as a gross sum does not envisage that any process similar to that involved in taxation should take place. On the contrary, the Court applies a much broader brush than would be used on a taxation of costs pursuant to O 62.

(iii) The Court should be confident that the approach taken to the estimate of costs is logical, fair and reasonable. The Court should be astute to avoid both overestimating the recoverable costs and underestimating the appropriate amount, for example by applying an arbitrary discount to the amounts claimed.

(iv) Although the power to assess a gross sum for costs involves the exercise of a discretion, it is necessary to bear in mind fundamental principles applicable to an assessment of costs on a party and party basis. These include the principles contained in O 62 r 19 (embodying the "necessary or proper" test) and those stated in Stanley v Phillips, per Barwick CJ (on a party and party taxation the emphasis is upon obtaining adequate representation to enable justice to be done, not upon the propriety of steps taken to ensure maximum success in the cause).

(v) Although the methodology permitted by O 62 r 4(2)(c) initially involves a broader approach than on a normal taxation, the provisions of O 62 and Sch 2 provide assistance in fixing an appropriate gross sum.

11 In The Argo Unit Trust case, Wood AsJ discerned further propositions from the cases, and pertinently added:

It is a given that the quantification of costs is invariably the result of a full taxation if the parties do not resolve the matter. A precise figure that represents the liability of the losing party is then arrived at in the taxation process. A gross sum is, just that. It is not arrived at with the same rigour and precision. It is a rare event when an unsuccessful party is not afforded the opportunity to participate in a full taxation. As the cases make clear there needs to be sufficient justification for the less precise option to be adopted, and the application of arbitrary discounts is not permitted if a gross sum exercise is selected as the option of quantification.[5]

The defendants rely on the fact that the litigation was long and complex. The plaintiffs submit that the issues identified that would have to be resolved in a taxation are matters that commonly arise. This is true, and the taxation process is able to accommodate these issues by the production of an itemised bill, and if necessary a full taxation. The issues identified above could make the assessment of any gross sum a complex and problematic exercise that would be much less accurate than a taxation. Resolution of most of these dilemmas would be in large part identified and resolved by the production of an itemised bill.[6]

13 An award of a gross sum is a 'rare event'.[7] It is an exception to the usual process that gives an unsuccessful party the opportunity to participate in the taxation process. Taking what is a less precise approach must clearly be justified in the circumstances. I must be confident that a proper gross sum can be assessed on the material available by a logical and reasonable approach that is fair.[8]

14 Substantially for the reasons submitted by the defendants, I am not satisfied that this is an appropriate case in which to depart from the usual procedure of taxation.

15 First, although a purpose of awarding a gross sum costs order may be to avoid delay and expense, it cannot be assumed that in a particular case such an assessment will be more time and cost efficient than taxation. Nor can it be assumed that a gross sum assessment will be simpler. In this case there is contested opinion from expert costs consultants about the efficiency of each approach. I note that:

(a) The defendants' submitted, correctly, that the taxation process incorporates opportunities for the resolution of costs disputes. It is common for the parties to be referred to a mediation that is usually conducted on the basis of short form objections, preparation of which can result in considerable costs savings if the taxation resolves by consent;

(b) The plaintiff's submissions emphasised the costs of taxation that can be avoided by a gross sum assessment. The experts noted differing assessments of these costs and I make no finding about them. I am satisfied that substantial additional costs would be incurred in a gross sum assessment because a further hearing to quantify the gross sum will be needed that will require cross-examination of the parties' respective experts as to both their methodology, particularly in respect of percentage discounting, and the quantum of their assessments. That further hearing will likely involve the preparation of further expert reports and several days of court time.

(c) I reject the plaintiff's contention that from the history of the conduct of the proceeding and, particularly, the trial, emerges a picture of the defendants' potential conduct in a taxation. That is, the defendants are likely to ensure that the taxation is protracted and expensive, taking every point with considerable vigour.

(i) First, I cannot reason on the basis that a party will not comply with the overarching obligations under the Civil Procedure Act. An argument of this kind was raised and rejected in both Playcorp Group of Companies Pty Ltd v Bodum[9] and in The Argo Unit Trust case.[10] In Playcorp, Middleton J said:

I accept that a gross sum assessment order may be appropriate where it will avoid a counterproductive dispute about costs, but, I am far from satisfied that this will occur in this case. Assuming that Bodum prior to instituting the proceedings left 'no stone unturned' in its approach, I do not conclude that further unnecessary conflict between the parties upon a taxation will necessarily occur.

I do not proceed on the basis the parties will approach the taxation in the way feared by Playcorp.

In fact, I should assume that the parties will (now that they are before the Court) conduct the taxation consistent with the 'overarching purpose' of the Rules of Court referred to in paragraph 6 above: see s 37N of the Federal Court Act.

There could be consequences if the taxation was not conducted in that fashion, which would include the opportunity to re-visit the appropriateness of granting the application under O 62 r 4(2)(c) and ordering costs of and concerning the taxation process itself: see eg Ualesi (t/as Australian Empire Imports) v Expeditors International Pty Ltd [2006] FCA 26; Australasian Performing Rights Association [1999] FCA 1006 and s 37N of the Federal Court Act. As far as costs are concerned, this could involve ordering any costs to be paid on a solicitor and own client basis.[11]

In The Argo Unit Trust case, Wood AsJ observed to similar effect:

Just because the plaintiffs in the current matter appear to have made decisions to seek millions of dollars in litigation and to refuse reasonable offers well in excess of what they eventually recovered in the substantive litigation (well within Magistrates' Court jurisdiction, does not necessarily mean that, properly advised in a costing exercise, they will make unreasonable decisions.

...

Here, the parties have engaged two very experienced and well credentialed experts. The Court is entitled to have some confidence that these individuals are alive to the relevant provisions of the Civil Procedure Act 2010. It could also be said that there is no guarantee a gross sum exercise would only take one to two days. If the parties want to run the exercise like the litigation it could take longer than the estimates of either expert.[12]

(ii) Secondly, the fact of an appeal by the defendants and the number of grounds raised by them in their notice of appeal is not an indicator of the defendants' likely approach to taxation. It is clear that each side is relying on expert costs advice and I share Wood AsJ's confidence that the tone of a taxation is likely to be influenced by the contribution that such experts will make. If that does not occur, the Costs Court has ample power to make appropriate costs or other orders as the circumstances may require.

(iii) Thirdly, the parties can protect themselves from unreasonable conduct in a taxation just as they can in a proceeding. Each party is represented by very experienced and skilled legal practitioners who will no doubt give appropriate strategic advice when required.

(iv) Fourthly, although there would appear to be a significant disparity in the financial strength of the parties, neither can be described as likely to suffer financial hardship in conducting, or as a result of, a taxation.

(d) I need not determine which process of costs assessment would be more efficient and cost effective, but it is highly relevant that there is competing expert opinion on the issue. That in itself may be a reason not to depart from the ordinary process of taxation. In any event, efficiency alone cannot justify making a gross sum costs order. As Wood AsJ observed in The Argo Unit Trust case, if this were 'the sole criteria there would be a gross sum sought and ordered in every case'.[13]

(e) On the other hand, the plaintiff argued against taxation because it would be delayed through her claims of client legal privilege pending the appeal. Although I do not accept the defendants' contention that waiver of privilege on taxation would not be a live issue because the appeal concerns quantum, the Costs Court has the power to make interim assessments and it is unclear whether the scope of the objections to items in a bill in taxable form would raise significant privilege issues. Moreover, on the plaintiff's estimates of the time that a taxation will take, I am not persuaded that an appeal, at least to the Court of Appeal, will cause any relevant delay as the appeal may well be resolved before a taxation comes on for hearing.

16 Secondly, other issues must be resolved should costs be assessed on a gross sum basis:

(a) First, what is the appropriate methodology for assessment? Methodologies are discussed by Wood AsJ in The Argo Unit Trust case. Antecedent to the methodology to be adopted is whether costs are to be assessed on the basis of the plaintiff's costs agreement or by reference to scale. This question is considered further below at [24].

(b) Second, how is GST to be treated?[14]

(c) Third, whether all disbursements are recoverable on an inter partes costs order?

17 Thirdly, the greater the complexity in the assessment of a gross sum, here evident from the level of disagreement between the costs experts, the greater the risk that the assessment of a gross sum would be much less accurate than resolution by reference to objections to an itemised bill. The plaintiff submitted that I could be confident that any assessment based on her costs expert's evidence would be logical, fair, and reasonable. Her submissions were based on the expert's reported methodology and the observation that the costs claimed were modest in the context of the litigation.

18 The defendants' costs expert identified 11 areas of contention with the plaintiff's costs expert regardless of methodology, and a number of other areas of contention if an 'adjusted fees' methodology was adopted. I need not canvass each of these possible areas of dispute. I am satisfied that the complexity of the gross sum assessment in this case would preclude me from determining an appropriate sum without resort to an unfair degree of arbitrariness, particularly in assessing competing expert opinion and in selecting discount or loading percentages.

19 The circumstances of this application are in some respects similar to those before the court in WM Wrigley JR Company v Cadbury Schweppes Pty Ltd.[15] In that case one party had filed an expert report on quantification, while the opposing party had simply filed material identifying parts of that calculation that it said were 'excessive, unreasonable, or required detailed analysis'. Sunberg J refused to exercise the power to order a lump sum:

because I am not satisfied that I can do so fairly between the parties, and with sufficient confidence that I would be arriving at an appropriate sum on a logical and reasonable basis, rather than selecting figures at random on the basis of an arbitrary preference for one expert's view over another's.[16]

20 Those sentiments apply in this case. The discretion must be exercised judicially. I am not satisfied that on the material available an appropriate sum could be identified on a logical and reasonable basis that is not arbitrary. While the plaintiff acknowledged that the defendants' costs consultant was yet to address quantification, I do not propose to defer my assessment of whether an appropriate sum could properly be identified until the defendants file and serve an answering expert report to that of the plaintiff, and each expert is cross-examined, followed by submissions from counsel addressing the assessment of a gross sum.

21 Finally, I considered the plaintiff's reliance on my decision in Sheehan v Brett-Young, and, in respect of the issue of hourly rates, on Croft J's decision in Sunland to be misplaced. Each of those decisions was, as the defendants submitted, distinguishable on the facts from this case and, beyond the general discussion of the applicable principles, of little assistance.

22 Accordingly, I will order that the defendants pay the plaintiff's costs of and incidental to the proceeding, including reserved costs, on an indemnity basis.

23 That said, there are a number of issues on which it is appropriate that I provide some guidance for the parties and the Costs Court.

Should indemnity costs be taxed in accordance with the costs agreement or the scale?

24 The defendant submitted that, even without further information, it is plain that the costs agreement between the plaintiff and her legal representatives is void.[17] This is said to arise from a failure of those legal representatives to provide the plaintiff with written information disclosing a significant change to the original estimate of the total legal costs of the proceeding. Accordingly, the costs agreement should play no part in the taxation exercise.

25 The defendant accepted that, under previous legislation - the Legal Profession Act 2004 - non-compliance with formalities would not automatically render an agreement void. Rather, unless the agreement was set aside on application to VCAT, costs could still be assessed by reference to it. However, the Costs Court would be entitled to make a reduction at the conclusion of taxation proportionate to the seriousness of the failure to disclose.[18]

26 The plaintiff submitted that the defendants' challenge to the basis of assessment of costs by reference to the invalidity of the costs agreement was, having regard to Catto v Hampton Australia Ltd (in liq)[19] misconceived. The applicable principle was that the costs that are recoverable on an indemnity basis are the costs paid, not the costs which the client had a legal liability to pay. It was not in dispute that the plaintiff had paid all invoices for the legal work in this proceeding, which were calculated in accordance with the costs agreement.

27 In Catto the plaintiff argued that the indemnity costs they were required to pay were confined to those which the defendants were legally liable to pay to their solicitors. In issue was the meaning of 'costs incurred' in the particular court rule. The plaintiff argued that the expression 'costs incurred' referred to costs which a litigant has paid, or is legally liable to pay. The plaintiffs asserted that unless the defendants could demonstrate the agreements complied with the terms of the relevant legal profession act, they could not show they had a legal liability to pay more than scale costs, and, on the adjudication, should be confined to such costs.[20] White J concluded that the phrase should not be construed in such a narrow way, and was in fact capable of being construed so as to refer to amounts actually expended by a party for costs.[21]

28 Wood AsJ followed Catto in Sunland Waterfront (BVI) v Prudentia Investments Pty Ltd (No 4).[22] Wood AsJ said:

In my view reductions to legal costs for non-compliance form part of consumer protection legislation and have application in reviews of costs under that legislation. Here there is no review initiated by the client under the Legal Profession Act 2004 (Vic)("the Act"). The plaintiffs are seeking to take advantage of a section that is not applicable to them. Section 3.4.44A (2) of the Act makes it clear that where there is a costs agreement in existence the Costs Court has a discretion to not tax in accordance with the agreement in the event of material non-compliance. The Costs Court however, is not required to initiate an inquiry as to whether disclosure complies with applicable legislative requirements. The onus must therefore be on the client to raise these matters before non-disclosure has any potential impact. There is no obligation on the court to initiate such an inquiry, even on a review initiated by the client. This underscores the fact that it is the client's right in a review under that Act. It is not the obligation of a court dealing with an inter partes taxation or gross sum exercise to perform a de facto review under the Act and reduce the costs recoverable from the party liable. An application to set aside a costs agreement can be made to the Victorian Civil and Administrative Tribunal by the party liable. Again, a de facto application by a party liable to pay costs who is not the client is not appropriate. In any event Catto makes it clear that where costs are already paid to legal representatives by a client who is a party favoured by a costs order, it is not open to the party liable to argue the costs are not "payable" by the client and thereby seek to avoid their liability under a court order.[23]

29 In Shaw v Yarranova Pty Ltd,[24] Beach J rejected the same argument:

A taxation of costs ordered to be paid by another party is not an occasion for an inquiry into what (if any) failures there have been in relation to disclosure requirements and what the "seriousness" of any such breach might be. The flexible and reasonable application of the indemnity principle, as the authorities show, does not permit such an approach.[25]

30 Catto pre-dates the presently applicable legislation, the Legal Profession Uniform Law.[26] The Uniform Law does not remove a client's legal liability to pay their solicitor. Rather, if disclosure obligations are contravened the client is not required to pay the legal costs until either the costs have been assessed, or any costs dispute has been determined by the designated regulatory authority. Here the plaintiff has paid her costs. Even if the Uniform Law was thought to affect a client's legal liability to pay their solicitor, Catto and the cases applying it, require that an unsuccessful party's obligation to indemnify a successful party with the benefit of a costs order who has paid their costs is unaffected.

31 I do not accept the defendant's submission that, as the Uniform Law automatically renders the costs agreement void, this court need not undertake an enquiry.[27] For a costs agreement to be rendered void, the court needs to be satisfied of the relevant facts. Whether the plaintiff's legal representatives failed to provide the disclosure as alleged is a live question. The plaintiff did not accept there had been any breach of the disclosure obligations.

32 The plaintiff submitted I should order that the costs be assessed on the basis on which they have been paid rather than by scale for the following reasons:

(a) Ms Harris' opinion is that the hourly rates are not unreasonable and within the range of hourly rates charged by firms;

(b) Ms Harris' opinion that the solicitors' costs of $552,000 are at the low end for a 22-day trial with the witnesses and issues that were involved;

(c) the bulk of the costs were incurred after the plaintiff offered to settle with the defendant - that is, the case was said to be run in a cost effective way by minimising costs until conclusion of negotiations close to trial;

(d) harmonisation between jurisdictions would be promoted by adopting the NSW approach to indemnification having regard to the origins of s 40 of the Defamation Act 2005 (Vic);

(e) the defendants comprehensively failed, 'maintained defences which were unjustified and not bona fide', and 'were motivated to ensure that Ms Wilson was worried all the way to the end'. It was submitted the comprehensive failure was a common element between this case and Sunland.

33 None of these factors persuaded me that it is appropriate to award costs on a gross sum basis.

(a) As I have already observed, the evidence of Ms Harris has not yet been tested, and was criticised by the defendant's expert.

(b) As the defendant submitted, the unsatisfactory aspects of the defendant's conduct in the proceeding highlighted by the plaintiff have been addressed by the award of damages and indemnity costs.

(c) The reasoning I am invited to follow, that given the defendant's conduct during the trial one can expect an adversarial contest on every point at taxation, is impermissible tendency reasoning. As I have already mentioned a prospective failure to comply with the Civil Procedure Act should not be assumed, and the Costs Court has ample power to supervise the conduct of the parties and their advisers on a taxation.

34 I will certify the plaintiff's senior counsel's brief fee at $9,000 per day.[28]

35 The expenses of a security guard were reasonably incurred. There was an unusually large public interest in the proceeding. It came to my attention during the course of the trial that the plaintiff had been approached in an inappropriate fashion by a member of the public. That person's attendance within the court precinct was monitored by court security personnel and I was satisfied that the plaintiff was upset and detrimentally affected by that contact. I directed that the person not attend again within the precincts of the court. It was clear that the plaintiff was legitimately concerned for her welfare and soon after engaged a security guard who co-operated with the court security and with my tipstaff.

36 It is unnecessary for me to say anything about the witness expenses in this proceeding given these findings.

37 The plaintiff's application is refused. I will order that the defendant pay the plaintiff's costs of and incidental to this proceeding, including reserved costs on an indemnity basis.

38 Subject to any submission from counsel, I will further order that the plaintiff pay the defendants' costs of this application.

[1] Wilson v Bauer Media Pty Ltd [2017] VSC 521.

[2] [2016] VSC 53.

[3] [2012] VSC 399 ('Sunland').

[4] [2013] VSC 137 ('The Argo Unit Trust case').

[8] Harrison v Schipp [2002] NSWCA 213; (2002) 54 NSWLR 738, 743 [22].

[9] [2010] FCA 455 ('Playcorp').

[10] [2013] VSC 137.

[11] [2010] FCA 455 [19]-[22].

[12] [2013] VSC 137 [42], [43].

[13] Ibid [19]; see also Thomas v Powercorp Ltd (No 9) [2012] VSC 207 [15].

[14] Note Lujerdean v GC Corrigan & Co Pty Ltd (Unreported, Supreme Court of Victoria, Wood AsJ, 4 April 2014) [19].

[15] [2006] FCA 1186.

[17] Legal Profession Uniform Law (Vic) s 178(1)(a).

[18] Legal Profession Act 2004 s 3.4.17(4).

[19] [2008] SASC 231 ('Catto').

[21] Ibid [32], [37]-[41], [43].

[22] [2013] VSC 669.

[23] [2013] VSC 669 [99].

[24] [2010] VSC 567 ('Shaw').

[26] See Legal Profession Uniform Law ss 178, 185, 199, 200.

[27] Sunland Waterfront (BVI) v Prudentia Investments Pty Ltd (No 4) [2013] VSC 669 [99].

[28] Cf. Charan v Nationwide News Pty Ltd (Costs Ruling) [2018] VSC 89 [49].