Protheroe v Protheroe

(1) Quantifying a Specified Gross Sum Instead of Assessed Costs

The Court indicated it would provide reasons for making the Civil Procedure Act s 98(4)(c) order in chambers on 15 September 2023, at the same time as quantifying that order after oral submissions on 26 September 2023. The reasons in respect of both those matters follow.
The present case is another situation in which the useful provision of Civil Procedure Act, s 98(4)(c) can be deployed. Subject to what happens in the appeal, Colin will be required to transfer Elmore and Shannon Vale to Brian late in January 2024 and for Brian to pay Colin the sum ordered by the Court. The Court has made costs orders against Colin in the proceedings and Brian has claimed substantial sums in costs pursuant to those orders.
The outcome of a cost assessment is a very significant matter for each party in calculating his financial future. Both parties will need as much financial certainty as the Court can provide as quickly as possible in anticipation of the settlement date which is now about three months away, subject to the appeal. Brian needs as accurate a picture as is possible of his asset and liability position, so he can fund the transfer to himself of Elmore and Shannon Vale and the further development of those properties thereafter. Colin also needs to know what his net assets and liabilities are so he can plan whatever income earning enterprise he wants to pursue during his retirement.
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. 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. The case law frequently emphasises the adaptability of the power and that it is not confined to previously defined classes of cases.
Probable inability to pay a costs order is but one example of 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).
Inability to pay costs is not the issue here. The issue in this case is providing certainty as quickly as possible for the parties before the transfer of Elmore and Shannon Vale and avoiding the expense delay and aggravation of a cost assessment whilst the parties are preparing for the transfer. The adaptability of the power means it can be assessed for deployment in many situations.
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];Hadid at [27]; Penson v Titan National Pty Ltd (No.3) [2015] NSWCA 121 at [7] and [25]; and Bechara (t/as Bechara and Company) v Bates [2016] NSWCA 294. The approach taken to the estimation of costs must be "logical, fair and reasonable" and the power 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.
A definitive statement of the applicable law on the operation of s 98(4)(c) appears in Hamod v State of New South Wales [2011] NSWCA 375 at [813] - [820] ("Hamod"). Some of the relevant principles stated in Hamod 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.
The need for the parties to have as much near-term certainty as possible before the transfer of Elmore and Shannon Vale calls for the making of a s 98(4)(c) order here. Moreover, the Court is confident that it can make such an order here. Brian's legal representatives have supplied memoranda of fees for the Court's information. The Court is very familiar with the scope and course of this dispute and is confident that it can make such an order fairly on the materials available. That exercise can now be briefly undertaken.
In support of Brian's application for a specified gross sum costs order Brian's legal representatives read the affidavit sworn on 29 August 2023 of Georgina Verity Williams, the solicitor with the day-to-day carriage of the file on behalf of Dick & Williams Lawyers, the solicitors for Brian. This affidavit gave the background to the conduct of the proceedings, much of which was already known to the Court and discernible from the Court file. Ms Williams account covered the period from Colin's commencement of proceedings in August 2019, the filing of the defence and the first cross-claim in December 2019, the application in September 2021 for the summary dismissal of the cross claim, the detailed program of orders for lay and expert evidence made by the Registrar Walton July 2021, which evidence was then filed, the setting of the matter down for hearing in November 2021 by Ward CJ in Eq (as the President then was) before her Honour in July 2022, the hearing before Hammerschlag CJ in Eq in May 2022, the nine day hearing in September and October 2022, and finally the relief hearing in May 2023. Relevant costs disclosure documents and memoranda of fees were tendered.
Ms Williams says that Brian's total legal costs calculated on the indemnity basis are $551,222.33. This is made up of counsel's fees of $165,238.50, other disbursements of $67,679.03 and professional costs for Dick and Williams Lawyers, of $318,304.80. She says that Brian's total legal costs calculated on the ordinary basis would be $487,561.37. This is made up of counsel's fees in the same amount of $165,238.50, disbursements in the same amount of $67,679.03, but taking professional costs for solicitors at only 80% of the original figure of $318,304.80, namely $254,643.84.
Ms Williams' evidence also includes an estimate of further counsel's and solicitor's fees of between $9,900 and $11,000 up to and including the putative hearing date of 30 August 2023. But as the procedural history above shows, the proceedings continued until 26 September 2023, so it can be expected that Colin incurred more fees, although the extra date of 26 September was incurred partly as the result of Ms Neilsen's joinder motion and the service of Ms Williams' affidavit close to the 30 August 2023 hearing.
The issue between the parties on fixing a specified gross sum can be narrowed down in broad terms to the following. In the submissions of 11 September 2023 from Carroll & O'Dea, the new solicitors for Colin, they submit that the total indemnity costs claimed by Brian of $551,222.33 are significantly more (by a factor of about $100,000) than the estimate of costs given by Mr Brown, counsel for Colin at the relief hearing on 16 May 2023 of about $450,000. It is submitted that the claim for $551,222.33 must therefore be inflated.
Carroll & O'Dea further submit on behalf of Colin that a 30% discount for costs and disbursements in respect of an order for ordinary costs is not uncommon: citing Davies J in Lewis v Doyle (No 2) [2022] NSWSC 447 and Beech-Jones J (as His Honour then was) in Bobb v Wombat Securities Pty Ltd (No 2) [2013] NSWSC 863. Colin submits that the Court should adopt the figure of $450,000 (as advised by Mr Brown on 16 May 2023) and apply the 30% discount to that figure. On that basis Colin calculates that a specified gross sum of costs in the sum of $315,000 should be awarded, being 70% of $450,000.
In the Court's view the appropriate specified gross sum to be awarded here is $450,000. This is calculated based on Brian's figures assessed on the ordinary basis but applying a discount of 30% to the solicitors' professional costs of $318,304.80 rather than 20%, leading to a solicitors' professional costs figure of $222,813.36. This produces an overall figure of $455,730.89 (being $222,813.36 plus $165,238.50 plus $67,679.03) which the Court rounds down to $450,000 to be conservative.
There are many reasons to take this approach in this case. Counsel fees are often allowed as disbursements to 100% unless they are excessive when the Court makes specified gross sum costs orders, modelling what happens on a costs assessment, see for example Bahamad v Wong [2020] NSWSC 991, Smilevska v Smilevska (No. 5) [2019] NSWSC 986. Sometimes counsel's fees are discounted by up to 10% or 15%: see for example Russo & Ors v Russo & Ors (No. 4) [2016] NSWSC 1133. But this is not a case where counsel's fees should be discounted. Mr Brown did not increase his fees from a relatively reasonable charge out rate from the beginning of the proceedings in 2019 until the conclusion of the proceedings this year. Ms Muscat's involvement as junior counsel was warranted in a matter of this size, and her reasonable charge out rates probably saved legal costs overall. There were a very large number of directions hearings in the case, motions and a nine-day hearing together with submissions for two supplementary hearings.
Moreover, the overall fees appear to be proportionate to the length of the hearing, the nature of the issues and the amount in dispute and do not otherwise seem intuitively to be excessive. Work produced by the solicitors for the plaintiff and counsel for the plaintiff was of a high quality focused tightly on the issues.
And there is conservatism in reaching a figure $450,000, which rounds down the calculation by almost $6,000 and ignores costs incurred after 28 August 2023. This is not the kind of case that would attract a global discount in addition to other discounts of the kind discussed by Brereton J in Hancock v Rinehart (Lump Sum Costs) [2015] NSWSC 1640.
Therefore, applying a 30% discount to total fees would excessively penalise Brian and a figure of $450,000 will be fixed.

(3) Relief on Brian's Alternative Inheritance Representations Claim

As the Court explained in the second judgment (at [71]) Mr Brown foreshadowed on behalf of Brian at the relief hearing that should Colin's present appeal proceed that it would be desirable for the Court indicate the relief that would have been granted on the alternative case that Brian advanced based upon the inheritance representations. The Court further explained in the second judgment (at [71]) that in the first judgment the Court found that the inheritance representations had been made out but the Court had given preference to consideration of the principal expectations that Colin created in Brian, the retirement representations, that Colin would retire from farming Elmore and Shannon Vale and wanted sufficient capital to do so to be able to conduct a small rural hospitality business in his retirement. But in the second judgment (at [72]) the Court left open, in the following manner, the possibility of considering, if requested, what relief would have flowed from the inheritance representations had relief not been given on the retirement representations. "72. The grant of relief to Brian on the retirement representations case displaced any need to mould the relief that would have been granted on the alternative inheritance representations. So, it is strictly not necessary to consider the inheritance representations, as they have become theoretical other than for the purposes of providing a groundwork of findings should Colin's appeal proceed. But the Court has yet to deal with issues of costs, consequent upon this judgment and the first judgment. If when the costs issues are being resolved, the parties indicate to the Court that it would assist the consideration of an appeal for the Court to indicate the relief that it would have granted on the inheritance representations, then the Court will do so at the time it gives judgment on costs issues."
As the final costs issues have now been resolved, the parties have requested that the Court describe the relief that it would have granted on the inheritance representations, which is done briefly below.
But first it is useful to survey briefly the findings that have been made in the first judgment in relation to the inheritance representations. What were called the 2000's representations in the first judgment and the pleadings consisted of two parts, that were pleaded in paragraph 64 and (b) of the amended cross claim. The retirement representations arose from what the first judgment and the pleadings called the "initial representations" (pleaded in paragraph 40 - (c) of the amended cross-claim) and further representations pleaded in paragraph 64 of the amended cross-claim. Whereas the inheritance representations arise from the initial representations and paragraph 64 of the amended cross-claim: see for example the first judgement at [116] and [117]. The representations made after 2014 can be ignored. In paragraphs [214] and [215] of the first judgment the Court set out the relationship between these two sets of representations as follows. "214. In the Court's view, Brian had a high degree of conviction from a very early age in his father's integrity and that his father would make good the statements he made to Brian about his future on the farms. Whilst they were made at a high level of generality, they were repeated often enough to be relied upon continuously and they created a unitary expectation in Brian that they would be fulfilled by Colin one day. And as these reasons explain later the conversations revealed that the date of fulfilment was mutually expected to be the date of Colin's retirement from farming. These representations pleaded in paragraphs 40 - (c) and 64 of the amended cross claim were similar in character and were the dominant representations made by Colin and relied upon by Brian from the early 1990s, right up until he left Elmore and Shannon Vale in January 2016. The Court's findings allow certain essential matters to be inferred from the generalised representations. These are also discussed below. 215 The other 2000s representations pleaded in paragraphs 64 which were of a testamentary character, and the representations after 2014 about splitting the land, plant, equipment, stock, and crops 50% each pleaded in paragraph [83] were also made by Colin. But these representations were always subsidiary in character. They never displaced in their effect the principal representations pleaded in paragraphs 40 - (c) and 64 of the amended cross claim that the farms were Brian's "future". Brian always expected that these would be the representations that Colin would act upon. For that reason, the Court does not need to consider issues of reliance upon the later representations of a testamentary character, or the representations for a 50-50 splitting of the assets remaining after NAB action."
After these passages, the Court continued at [216] - [222] of the first judgment to analyse issues of reliance and detriment. This reasoning did not distinguish between the retirement representations and the inheritance representations. One intersection of the two groups of representations emerges in the Court's summary in the first judgment at [255] of the essential matters that Colin expressly addressed or were implied between the parties. One of those assumptions (at 255) covered the possibility of Brian's death before retirement made based upon Colin's statements.
The existence of the retirement representations only displaced the need for the granting of relief with respect to the inheritance representations. The retirement representations did not displace the inheritance representations, Brian's reliance upon them or the detriment that he suffered based upon them. The inheritance representations were made. Brian relied upon them to his detriment in a manner coordinate with his reliance upon the retirement representations. Had the Court not granted relief in respect of the retirement representations, the circumstances in which the inheritance representations were made and relied upon make it equally inequitable and contrary to good conscience for Colin now to depart from them and the appropriate relief is for them to be fulfilled. The question is how they should be fulfilled.
The issues faced here in granting relief, based upon the inheritance representations, are somewhat like those faced in Q (a pseudonym) v E Co (a pseudonym) (2020) 383 ALR 469; [2020] NSWCA 220 (Q v E Co). In Q v E Co the Court considered a situation which a father of a family with extensive rural holdings had set up a family corporate structure, E Co, for the conduct of the family grazing business and thereby encouraged his three sons in the expectation that he would hold the farming properties for use in the family farming business until he died, and then pass them on to his sons by will. This is referred to in Q v E Co as the "holding/inheritance expectation". In a judgment covering many issues other than the grant of relief the Court of Appeal (Meagher JA, Leeming J and Payne JA agreeing) upheld the primary judge's decision that the father had encouraged his sons to adopt the holding/inheritance expectation, that the expectation attached to later acquired properties, and that the sons had relied upon that expectation to their detriment.
As with the present case when the Court is considering the inheritance representations, in Q v E Co the Court considered what was an appropriate form of relief to give effect to the holding/inheritance expectation. Making good the holding/inheritance expectation in Q v E Co would have involved requiring the father to hold the farm properties and to allow them to be leased by E Co for use in its farming business until his death, and then to leave them to his sons by will. But it was recognised in Q v E Co, that the parties, the father and his three sons, should separate out their financial interests. Therefore, holding the farming properties until the father's death was not a practical form of relief. So, the Court considered accelerating the holding/inheritance expectation. But Meagher JA pointed out the importance of distinguishing between the holding/inheritance expectation and "that expectation as accelerated" (at [172]).
The same is the case here. Brian and Colin cannot be tied together financially any longer. The grant of relief to Brian on the inheritance representation must be on terms that will allow Brian's expectation to be accelerated. On their past conduct as found by the Court, to do otherwise invites years of chaos and further litigation between these two men. Because of their hostile and fractured relationship, it is readily foreseeable, for example, that Colin will do something on or with Elmore and Shannon Vale which Brian will regard as conduct damaging or diminishing his inheritance and Brian will be required to commence proceedings to regulate the situation. At the least Brian will have to watch Colin very closely. It is best for both of them and their families that the Court's grant of relief does not force them into unnecessary proximity with one another.
But an acceleration of the inheritance representations means that Brian would receive Elmore and Shannon Vale immediately rather than on Colin's death. The retirement representations must be ignored here, which is the assumption upon which the present relief is being considered. As was the case in Q v E Co, framing relief on the inheritance representations to reflect good conscience does not require Colin to make nor entitle Brian "to receive an unqualified present gift of the farm properties": Q v E Co at [175]. To frame relief in such terms would mean that Colin would be deprived during his lifetime of the use of Elmore and Shannon Vale both as a residence and as security: Q v E Co at [175].
Therefore, a condition should be imposed upon the relief to be granted to avoid going beyond the requirements of conscience. Good conscience requires that the Court give effect to the position which would have been obtained had the inheritance representation been made good but not accelerated: Q v E Co at [177]. In this case Colin could have used Elmore and Shannon Vale for farming and security during his lifetime and the acceleration means that he should be compensated as a condition for keeping up that use.
In Q v E Co the Court of Appeal approved the approach, initially taken by the primary judge in that case, that the payment to Q of present discounted value of the market rent which would have been payable over the balance of Q's life expectancy was an appropriate measure to avoid the risk of overcompensation in the grant of relief. That is the appropriate measure here, where any other joint farming enterprise between Colin and Brian is at an end.
Brian's submissions advanced a calculation of the present discounted value of the market rent of Elmore and Shannon Vale based on the evidence, which the Court accepts.
The parties have agreed, based on the expert valuer's conclave and a joint report dated 1 October 2022 that the net annual rent on Elmore and Shannon Vale is $220 per hectare, excluding pasture improvement. Combined, the two properties comprise a total of 552 hectares. Therefore, the annual rent for the two properties would be $121,440. But Brian submits that if acceleration occurs and Brian takes a transfer of the properties subject to the CBA mortgage, Colin would no longer be responsible for the CBA mortgage payments, and he would obtain that benefit from the acceleration, which Brian submits should be notionally deducted from the net present value of the market rent.
Brian's calculation works on a mortgage of $800,000 (which is slightly different from the amount now found by the Court) which he submits represents 16% of the overall value of Elmore and Shannon Vale of $4.910 million. He submits it would be appropriate to reduce the lease payment by the same amount of 16%. Therefore, reducing the annual market rent of $121,440 by 16%, produces an annual residual rental figure of $102,009.60. Colin's life expectancy is 13 years given that at the date of trial he was aged 74 years. The Court had in evidence on the relief hearing (exhibit R4) Furzer Crestani Forensic life tables and net present value calculations. For each of the 13 years of Colin's life expectancy Brian's calculation produces a net present value for the income stream based upon an annual figure of $102,009.60. It is not necessary to reproduce a calculation, but it produces a result of $958,379. Brian says that this should then be reduced by 15% to meet the vicissitudes of life that is a figure of $814,622.15. This is the figure which Brian says should be paid at settlement on the basis of granting relief, accelerating the inheritance representations.
The Court mostly but not wholly agrees with Brian's approach. The Court agrees that reducing the net annual rental figure of $121,140 by 16% is appropriate given that this would have been an outgoing that Colin would have had to bear if the inheritance representation were not accelerated. Whether it should be measured in this precise way (measured 16% of the capital value of the properties) was not debated at any relief hearing and can be accepted as a reasonable measure for present purposes.
But the Court does not regard the deduction of 15% for vicissitudes as appropriate. The vicissitudes do not all cut against Colin. He could live longer or shorter than the 13 years projected by the life tables. There is no medical evidence that he would do one or the other. Thus if the Court were to grant relief on this basis it would have fixed a figure of $958,379 for payment at settlement on account of the accelerated transfer of Elmore and Shannon Vale to Brian.
It is not necessary to make any final order in relation to the Court's reasoning here about what relief would have been granted on Brian's alternative inheritance representations claim. The Court has already grant relief in respect of the retirement representations, which displaces the need for other relief in fulfilment of the inheritance representations.

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Judgment (8 paragraphs)

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Cases Cited (16)