Plaintiff v Firstnamed Defendant Secondnamed Defendant

Supreme Court of Victoria|2010-12-13|Before: BEACH J

COSTS - Review of orders of Costs Court - Indemnity principle - Rule 63.57 Supreme Court (General Civil Procedure) Rules 2005.

1 The plaintiff has not enjoyed great success in this proceeding. He lost at first instance before Bell J[1] and was unsuccessful on appeal. Since losing his appeal, a number of judgments and orders have been made adverse to the plaintiff, including the following orders for costs:

(d) Evans AsJ made 22 May 2009, 27 May 2009 and 16 July 2009;

(f) J. Forrest J made 3 September 2009.[3]

2 The costs orders of Daly AsJ, Warren CJ and Buchanan JA, Judd J, Evans AsJ, Kings AsJ and J. Forrest J, to which I have referred, were eventually taxed. Mr Shaw was dissatisfied with the taxation of these costs orders, and instituted review proceedings pursuant to rule 63.56.1 of the Supreme Court (General Civil Procedure) Rules 2005. These reviews (initiated by the plaintiff on 16 October 2009 and 4 May 2010) resulted in orders being made on 27 April 2010 and 26 July 2010.

3 On 24 August 2010, the plaintiff filed a document headed "Notice for review of taxation orders by Judge of the Court" ("the present review") purportedly in compliance with rule 63.57. Rule 63.57 relevantly provides:

"(1) An order of the Costs Court under Rule 63.56.1(6) may be reviewed by a Judge of the Court.

(2) If any party interested objects to an order of the Costs Court under Rule 63.56.1(6), a Judge of the Court, on the application of that party, may review the order if the Costs Court has given reasons under Rule 63.56.1(8).

(3) An application under paragraph (2) shall be made by notice.

(4) ...

(5) Within 14 days after the making of the order of the Costs Court or the giving of reasons, whichever is the later-

(a) the notice under paragraph (3) shall be filed;

(b) a copy of the notice shall be lodged with the Costs Court; and

(c) a copy of the notice shall be served on each party interested.

(6) ...

(7) On the review, the Judge of the Court may-

(a) exercise all the powers and discretions of the Costs Court with respect to the subject matter of the review;

(b) confirm, set aside or vary the order of the Costs Court or make such further or other order as may be necessary;

(c) remit any item in the bill to the Costs Court;

(d) make any other order the case requires.

(8) ..."

4 In the present review, the plaintiff seeks to review the orders made on 27 April 2010 and 26 July 2010 - being reviews of the taxations conducted in respect of the orders of Daly AsJ, Warren CJ and Buchanan JA, Judd J and the first two and part of the third order of Evans AsJ. Additionally, in the present review, the plaintiff seeks to review orders made on 29 July 2010 with respect to taxations of part of the third order of Evans AsJ and the orders of Kings AsJ and J. Forrest J. The problem with seeking to review the orders of 29 July 2010 in the present proceeding is that there has been no review of those orders pursuant to rule 63.56.1 as required by rule 63.57(1) and (2). In acknowledging this difficulty, the plaintiff explained the reason he seeks to review the 29 July 2010 order (where there is no jurisdiction) with the orders of 27 April 2010 and 26 July 2010 (where there is jurisdiction) is that the point he has raised (and raises in the present review) is the same for all three orders.

5 A number of costs orders have been taxed applying the Supreme Court Scale.[4] The plaintiff's point is based on the so-called "indemnity principle". The indemnity principle was described by Santow JA in Wentworth v Rogers[5] in the following terms:[6]

"The indemnity principle is long-established at general law. It is however not to be applied rigidly, or uninfluenced by statute or by practice recognised by statute, such as in relation to conditional fee agreements. I do not agree with the amicus' submissions that the principle has ceased to exist. Certainly there have been inroads to it brought about by the Act and by analogical reasoning from recognised exceptions. Where a party to an action has an agreement with their legal adviser that they do not have to pay any costs, then the general law principle states that that party cannot recover party and party costs against their adversary: McCullum v Ifield [1969] 2 NSWR 329 at 330 per Taylor J citing Gundry v Sainsbury [1910] 1 KB 645.

This principle has been applied to applications for assessment of party and party costs under the Act. Thus in Howard & Ors v Mechtler & Ors [2000] NSWSC 455 at [11] Master Malpass observed:

'Under an order for costs, the paying party is only obliged to pay such costs as the receiving party was primarily and potentially legally obliged to pay to his solicitor. There is an indemnity only in respect of the costs covered by the order. A receiving party cannot recover a sum in excess of the liability to his own solicitor. ... It is necessary to prove that under no circumstances does the client have any liability to pay costs to his solicitors.'"[7]

6 In taxing the various orders for costs against him, the plaintiff has endeavoured to establish (or obtain documents for the purpose of establishing) that the defendants in favour of whom costs orders have been made either have no liability to the solicitors who have acted for them; or have a liability that is less than might be calculated by a standard party/party taxation. The plaintiff gives an example of non-compliance with the Legal Practice Act 1996[8] as potentially reducing the amount of costs chargeable by the solicitors acting for the defendant.[9]

7 The plaintiff's point in a nutshell is that the defendants should be required to produce sufficient documentation establishing their liability to pay costs to the solicitors acting for them in an amount at least as great as the amounts of costs the plaintiff has been ordered to pay pursuant to the relevant orders in this proceeding. Before proceeding further, it is necessary to set out some of the history of this proceeding.[10]

8 From the material before me, it would appear that the plaintiff first raised the indemnity principle as a possible issue during applications heard by Harper J[11] in October 2009.[12] One of the applications heard by his Honour was an application for leave to appeal orders of Wood AsJ made on 16 November 2007 and 18 February 2008. During the course of the applications, his Honour gave the following ruling:

"I am against you Mr Shaw, in my opinion it is now too late to appeal the orders of Associate Justice Wood made on respectively 16 November 2007, and the 18 February 2008. The only explanation put forward for the delay in seeking leave to appeal is that the associate justice may have changed his position in relation to the orders he made then, had the plaintiff presented the associate justice with documents which he says would in some way affect the decisions made by the associate justice.

As I understand it the documents may suggest that the costs taxed by the associate justice were not in fact paid by the respondent. Even if that were true the question before the associate justice is whether the costs were charged by the legal representatives of the respondents. If they were charged by the legal representatives of the respondents, and they were reasonable, and they were taxed accordingly, then the fact that the legal advisors may not have actually received those monies from the respondents is irrelevant. In my opinion the failure of Mr Shaw to appeal against the relevant orders in time together with the - is in itself a reason why the matter should not now be opened, or reopened after this very long lapse of time.

In addition I see no substance in the submission which Mr Shaw has put to me going to the alleged defect in the process by which Associate Justice Wood came to his decision."[13]

9 During the hearing before Harper J, Mr Shaw cross-examined the defendants' solicitor, a partner of Arnold Bloch Leibler, Mr Alexander King. During the course of his evidence, Mr King swore that Arnold Bloch Leibler's retainer was with MAB Corporation Pty Ltd in respect of it and its various subsidiary companies and their businesses. He also swore that MAB Corporation Pty Ltd was the head company in the MAB group, two of which were the defendants in this proceeding. However, at no time did Mr King say that the defendants were not liable to pay for the work done by Arnold Bloch Leibler in this proceeding.

10 Following the conclusion of the applications before Harper J, the issue of the liability of the defendants for Arnold Bloch Leibler's fees was dealt with specifically by Mr King in an affidavit sworn 3 December 2009. Mr King swore:[14]

"It appears that the Plaintiff, by paragraphs 39 to 49 of his affidavit affirmed 19 November 2009, believes that the Defendants are not liable to ABL, their solicitors, for the costs of ABL providing legal services to the Defendants. This appears to be due to the fact that ABL invoices MAB Corporation Pty Ltd.

The Defendants are but two companies within a large group of companies known as the "MAB group of companies". ABL acts for a number of companies in that group, including each of the Defendants. The Defendants are, and have always been, liable to pay ABL for legal services provided to them.

ABL has never entered into any agreement or arrangement, whether with MAB Corporation Pty Ltd or with either or both of the Defendants or anyone else on their behalves, to the effect that either or both of the Defendants will not under any circumstances whatsoever be liable for ABL's fees for providing legal services to the Defendants. I gave oral evidence to that effect before Harper J and I was cross-examined by the Plaintiff on that very issue."

11 There was a taxation of the bills drawn pursuant to the orders of Daly AsJ, and Warren CJ and Buchanan JA, on 24 September 2009. A notice of review under rule 63.56.1 was filed on 16 October 2009. In his submissions with respect to that review, the plaintiff stated that "The defendant[s] should provide evidence of the terms of the retainer outlining the circumstances and any limitations on the fees or liabilities the defendants may have to their solicitors and actual costs paid by them". The plaintiff relied upon the decisions of Kuek v Devflan Pty Ltd & Anor[15] and Dyktynski v BHP Titanium Minerals Pty Ltd.[16] The plaintiff also sought production of "relevant retainer letters, costs agreements, invoices, proof of payment of invoices" and "actual costs paid".

12 On 19 February 2010, Wood AsJ delivered "reasons on review". His Honour stated:[17]

"While production of retainer letters and any costs agreements may be justifiable, the real purpose is to see if the basis for charging is at least as generous as Supreme Court Scale for the solicitor. The exercise is a limited one as outlined by Beach J in paragraph 16 of ... [Kuek v Devflan].

By way of comment there are a number of practical difficulties that flow from the rationale in Kuek. For example, solicitors for a party in the position of the defendants in the case at hand, may have charged the client for the entire proceeding and not for specific blocks of work that coincide with periods of time referrable to the orders for costs against the plaintiff.

Further, the solicitor might not have billed the client at all at the point of the party/party taxation and is awaiting conclusion of all proceedings between the parties. At that time he may be intending to charge the client, but a third party may ultimately pay. It would be against the interests of justice for a taxation of a party and party bill to be delayed until such time as the successful party had paid the costs owing to their solicitors. They may be lacking in funds and wish the solicitor to recover money from the unsuccessful party and then pay the balance.

Accordingly, I do not propose to direct the production of actual bills or invoices rendered, or proof of payment as sought by the plaintiff ... . They probably would be lump sum bills not in taxable form and they would not necessarily span the period of time or the work caught by the costs orders made. They may in fact straddle a greater period of time than just the period covered by the costs orders. The real issue is the liability to pay costs, not whether at any point in time that coincides with the taxation, bills of costs have actually been rendered and paid. As stated by Beach J in paragraph 16 of Kuek ... :

'Provided that the client has a liability to the solicitor for an amount equal to or greater than the party/party bill, the indemnity principle is not necessarily infringed'.

For completeness the plaintiff also raises in the Review the issue that the defendants themselves do not have a liability to the solicitors and that the costs have been paid by MAB Corporation ... . At the taxation hearing the plaintiff was similarly focused on the fact that the defendants did not have funds to pay legal fees and therefore cannot recover legal fees. This argument has no merit (and has already been agitated before Harper J as part of the leave to appeal issue in October 2009).

The real question however is the basis of any liability to pay legal fees. In the absence of a costs agreement by default the Supreme Court scale would apply and the taxation was conducted on that basis. The plaintiff would be in no worse position if this was the case. If there is no costs agreement covering work that MAB Corporation or the defendants have a liability for, in relation to acting for the defendants during the relevant period then there is nothing to produce.

If there is a costs agreement that covers the relevant period where the solicitors are acting on behalf of the defendants then it should be produced to satisfy the Court that the costs liability to the solicitors is not less than the taxed amount.

For the indemnity principle to not be offended the Court need only be satisfied there is a liability for costs equal to or more than the Supreme Court scale. As Beach J outlined in Kuek ..., this is not a sophisticated exercise and will be of limited ambit. However any documents and agreement if they exist ought to be produced."

13 As a result, Wood AsJ made the following orders on 19 February 2010:

"1. Within 30 days the solicitors for the defendants file and serve an affidavit that exhibits any relevant document and any costs agreement (subject to redacting any privileged material) that establishes the method of calculation of legal fees in relation to acting for the defendants in the substantive proceedings relevant to the period of work performed in relation to the bills of costs being the subject of the orders of the Court of Appeal made 1 August 2008 and Master Daly made 7 March 2008.

2. The matter is listed for further mention on 27 April 2010 at 9.30am."

14 Notwithstanding paragraph 1 of Wood AsJ's orders of 19 February 2010, the defendants did not file and serve any affidavit as contemplated by that paragraph. Instead, on 26 March 2010, the solicitors for the defendant wrote to the Court and the plaintiff in the following terms:

"The defendants ... have not filed any affidavit in response to order (1) because there are no documents, save for actual bills or invoices rendered as proof of payment, production of which was not required ... [by] ... the reasons."

15 On 14 April 2010, the plaintiff filed a document headed "Request for additional orders". In this document, the plaintiff stated:

"The defendant has advised that there are no documents in existence that outline the method of costs calculations.

Now that this is confirmed the plaintiff requests a review of the orders and additional orders for the production of invoices & receipt for payments.

If these documents are not properly examined the court cannot be satisfied the total amounts did not exceed the defendants' actual liability to their lawyers & counsel.

In accordance with the indemnity principle the costs should be assessed as a total amount not exceeding the defendants' actual liability to their lawyers & counsel."

16 On 27 April 2010, Wood AsJ completed his review. On 6 May 2010, Wood AsJ published further reasons, which his Honour said "should be read in conjunction with, and supplement the reasons published on 19 February 2010". In these reasons, Wood AsJ explained why the review initiated by the plaintiff on 16 October 2009 was unsuccessful.

17 In his reasons of 6 May 2010, Wood AsJ refused the plaintiff's application for "additional orders for the production of invoices & receipt for payments". His Honour stated:

"At the hearing on 27 April 2010 the defendants confirmed that there were no documents that fell within the description of the order of 19 February 2010. By default therefore the liability of the defendants for legal costs performed on their behalf is on [the] Supreme Court scale. The taxation took place on that basis and therefore there is nothing to suggest the indemnity principle has been offended. Accordingly, the taxation figures were confirmed on review pursuant to rule 63.56.1(5)(b)."

18 On 26 July 2010, Wood AsJ dismissed the notice of review initiated by the plaintiff on 4 May 2010. His Honour's reasons in relation to the indemnity issue were the same as those he had previously given. For the sake of completeness, I should mention that with respect to this notice of review, there was an additional complaint concerning a denial of natural justice in relation to items 1 to 97 of the bill of costs drawn pursuant to the orders of Evans AsJ made 22 May, 27 May and 16 July 2009. Before Wood AsJ, the plaintiff contended that he was not given proper notice of the taxation and was not able to submit objections in respect of those items. Wood AsJ rejected this submission and the complaint was again made in the notice of review which initiated the present review. However, at the hearing before me, the plaintiff abandoned this argument.[18]

19 It has been said on many occasions, the indemnity principle is "not to be applied rigidly": it is to be applied "flexibly and reasonably".[19]

20 In the review proceedings before Wood AsJ, the plaintiff obtained an order that the solicitors for the defendants file and serve an affidavit exhibiting any relevant document and any costs agreement that establishes the method of calculation of the relevant legal fees. In my view, that order was correctly made.

21 Upon being advised that there were no documents of the kind referred to in the order, the plaintiff sought invoices and receipts. There was no basis for ordering the production of these documents. In my view, Wood AsJ was correct to reject this application. Applying the indemnity principle "flexibly and reasonably" does not mandate a fishing exercise by a party ordered to pay the other side's costs, and hoping to find something in the other side's documents which might support an argument which is presently without any foundation.

22 In his submissions before me, Mr Shaw took issue with a statement in the reasons of Wood AsJ published on 6 May 2010. In the course of describing what was at issue between the parties, his Honour said, "There is no dispute that invoices for legal costs have been rendered and paid ...". Mr Shaw said that he did dispute this proposition. Mr Shaw said:[20]

"That's the very point I was disputing. I am saying I want to see the invoices, and I want to see that they have been paid, and I want to see what the amounts are that have been paid. So that is clearly an error in the judgment, Your Honour."

23 The fact that the plaintiff might dispute that invoices have been paid is of no moment. Mr King's evidence is that the defendants are and have always been liable to pay Arnold Bloch Leibler for the legal services provided to them. Further, the plaintiff cross-examined Mr King in the applications before Harper J, to which I have already referred.

24 As to the proposition that the defendants' costs were not in fact paid by them (but paid by a related company), as was said by Harper J when his Honour ruled against the plaintiff's application for leave to appeal out of time against Wood AsJ's orders of 16 November 2007 and 18 February 2008:

"Even if that were true the question before the Associate Justice is whether the costs were charged by the legal representatives of the [defendants]. If they were charged by the legal representatives of the [defendants], and they were reasonable, and they were taxed accordingly, then the fact that the legal advisers may not have actually received those moneys from the respondents is irrelevant".[21]

25 Underlying part of the plaintiff's submissions was a contention that every party ordered to pay another party's costs is entitled to pursue an argument (and seek all relevant documents for the purposes of the pursuit of that argument) that there may have been non-compliance with disclosure obligations under (in this case) the Legal Practice Act 1996.[22] The argument would then run that the party ordered to pay costs is entitled to rely on a failure to give information by the lawyers for his opponent to his opponent in reduction of the opponent's liability to his lawyers - and thereby bring the indemnity principle into play. Wood AsJ rejected this proposition. His Honour was correct to do so. A taxation of costs ordered to be paid by another party is not an occasion for an inquiry into what (if any)[23] failures there have been in relation to disclosure requirements and what the "seriousness"[24] 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. In any event, how the production of invoices and receipts might show a failure by a party's solicitor to comply with disclosure requirements was never explained by the plaintiff.[25]

26 The taxations the subject of the present review were conducted in accordance with the Supreme Court scale. There was no basis for conducting them in any other manner. The plaintiff has failed to identify any error of principle in Wood AsJ's conduct of the reviews the subject of the present review. The principles to be applied and the approach to be taken by this Court in reviewing orders of the Costs Court are well known and do not need to be set out here.[26] It is sufficient to say that in the absence of some identified error of principle, or giving weight to irrelevant matters, or failing to give weight (or sufficient weight) to relevant matters, or making a mistake as to the facts, the decision should be affirmed unless the Court is satisfied that it is clearly wrong - there being a strong presumption in favour of the correctness of the decision the subject of the review.

27 As I have already said, there was no error of principle. Further, appropriate weight was given to relevant matters only and there was no relevant mistake as to the facts. Accordingly, the plaintiff's application for review must be dismissed.

28 The plaintiff's application for review was not filed within the 14 day time provided for in rule 63.57(5).

29 The plaintiff's explanation for being out of time was not entirely satisfactory. It involved an assertion of difficulties "with the administrative side of things" (this was a reference to correspondence between the plaintiff and the prothonotary's office in May 2010[27]) and waiting until the conclusion of the review in relation to the taxation of the costs ordered by Judd J on 2 June 2008 (which review resulted in the orders of Wood AsJ made 26 July 2010).

30 Whilst there was no satisfactory explanation of the delay between Wood AsJ's order of 26 July 2010 (or his Honour's order of 29 July 2010) and the filing of the application for review on 24 August 2010, I formed the view that if there was merit in the plaintiff's application, I would have extended the time under rule 63.57(5). However, as I have now found against the plaintiff on the substantive issue, I do not propose to extend the time for the filing of the plaintiff's notice for review.

31 For the reasons given above, the plaintiff's application for review filed 24 August 2010 will be dismissed and the orders of Wood AsJ made 27 April 2010 and 26 July 2010 will be confirmed.

32 I will hear the parties on the question of costs.

[1] Shaw v Yarranova Pty Ltd [2006] VSC 45.

[2] Shaw v Yarranova Pty Ltd [2006] VSCA 291; (2006) 15 VR 289.

[3] These are not the only costs orders that have been made against the plaintiff in this proceeding: they are merely the ones presently relevant.

[7] See also Irving v Gagliardi; ex parte Gagliardi (No. 2) (1895) 6 QLJ 200; Adams v London Improved Motor Coach Builders Limited [1921] 1 KB 495; Backhouse v Judd [1925] SASR 395; Johnson v Santa Teresa Housing Association [1992] NTSC 29; (1992) 83 NTR 14 and Quek v Devflan Pty Ltd & Anor [2009] VSC 91.

[8] Remembering that this proceeding commenced before the commencement of the Legal Profession Act 2004.

[9] Cf s 91 of the Legal Practice Act.

[10] For further detail, see Shaw v Yarranova [2005] VSC 94; Shaw v Yarranova [2006] VSC 45 (and on appeal [2006] VSCA 291; (2006) 15 VR 289); Shaw v Yarranova [2009] VSC 380; Shaw v Yarranova [2009] VSC 490; Shaw v Yarranova (No. 2) [2010] VSC 125; Shaw v Yarranova, unreported Court of Appeal, delivered 25 October 2010; Shaw v Gadens Lawyers [2010] VSC 7 and Shaw v Gadens Lawyers, unreported Court of Appeal, delivered 3 August 2010.

[12] These applications culminated in his Honour delivering judgment on 21 October 2009 (Shaw v Yarranova Pty Ltd & Anor [2009] VSC 490).

[19] See generally Commonwealth Bank of Australia v Hattersley [2001] NSWSC 60; (2001) 51 NSWLR 333 at 340 [26]; Dyktynski v BHP Titanium Minerals Pty Ltd [2004] NSWCA 154; [2004] 60 NSWLR 203 at 220 [100]; Wentworth v Rogers [2006] NSWCA 145; (2006) 66 NSWLR 474 at 486 [45] (but cf at 510 [161]) and Kuek v Devflan Pty Ltd & Anor [2009] VSC 91, [16].

[21] See further the analysis of McColl JA in Dyktynski v BHP Titanium Minerals Pty Ltd [2004] NSWCA 154; (2004) 60 NSWLR 203, [67]-[109], Mason P at [24] and Davies AJA at [112].

[22] And perhaps in other cases, under the Legal Profession Act 2004.

[23] Remembering that there are exceptions to the disclosure requirements (see for example s 90 of the Legal Practice Act 1996).

[24] Cf s 91 of the Legal Practice Act 1996.

[25] Further, even if there was any merit in the plaintiff's submission, no argument was advanced as to the amount by which the defendants' costs should be reduced. Additionally, it is difficult to see why any failure to comply with disclosure requirements (if indeed there were disclosure requirements and there was a relevant failure) would realistically reduce the defendants' solicitors' entitlement to be paid their costs from a solicitor/client figure to below a party/party figure.

[26] See Australian Coal and Shale Employees Federation v The Commonwealth [1953] HCA 25; (1953) 94 CLR 621, 626-629 (per Kitto J).

[27] Exhibited to the plaintiff's affidavit sworn 17 October 2010.

Court (General Civil Procedure) Rules 2005

Legal Practice Act 1996

At a glance

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Judgment (70 paragraphs)

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Cases Cited (5)