Riva NSW Pty Limited v Mark A. Fraser t/a as Fraser Clancy Layers; Fraser v Riva

A Change in the Court's Management of the Proceedings

1. One aspect of the Court's management of the inactive phase of these proceedings should be mentioned. Between its delivery of the third judgment in late 2020 and about mid-2021 the Court changed its approach to finalising the remaining costs issues in the proceedings from a single judgment on all issues to a staged approach.
2. The change was as follows. In the Court's third judgment given on 23 October 2020, the Court set out the unfortunate history of delay in these proceedings since the Court's first judgment. The Court said the following about that in the third judgment (at [11] - [13]): "[11] The Court will not afford the parties any further opportunities for delay. It has decided that it will not entertain any preliminary issues. The parties must prepare for hearing on the basis that everything now remaining to be determined will be decided on the basis of one final set of written submissions on each side, cross-referenced to a single modestly proportioned agreed bundle of documents containing all the evidence relating to all the remaining issues between them. If that means submissions need to be prepared in the alternative, depending upon the outcome of some issues, then that is how the parties must organise themselves. [12] The Court's principal remaining objective is to determine whether indemnity costs are payable in the Riva damages proceedings and the making of a specified gross sum costs order. The subsidiary issues raised are the application of Bell Lawyers v Pentelow to this assessment of costs and the cost issues raised by Gells Lawyers in their letter of 7 September 2020. [13] With these observations in mind as to what the Court expects, the parties should now attend to the Court's request in its email of 8 September 2020 for the provision of agreed directions. That request is now a direction. If the parties cannot agree upon directions, they should provide competing directions. But in crafting these orders the parties should remember that they cannot expand the evidence or the issues in these proceedings without the express authorisation of the Court to that course in advance. If the parties wish to put on any further evidence or take any steps other than preparing the Court book and submissions, then the directions that party propose should encompass that possibility for the Court's consideration."
3. The parties were then directed to provide to the Court short minutes of order containing directions to achieve finalisation of all remaining issues, after they had considered the Court's observations in the judgment that day. The parties were not able to agree upon satisfactory short minutes of order and directions hearings continued in the matter to try and ensure that the parties achieved the objective of dealing with all remaining issues.
4. But it became apparent from the submissions that the parties filed that the Court could not achieve the objective of having one single hearing where both (a) all remaining costs issues and, (b) fixing a specified gross sum instead of assessed costs under Civil Procedure Act 2005 s 98(4)(c), would be determined. The Court's change in approach to managing these proceedings was driven by several factors. But two of those factors were the number of legal issues raised by Riva and the lack of discipline the solicitors conduct of the proceedings.
5. At a directions hearing on 29 June 2021, the Court changed tack and indicated that it would deal with the issues in a two-staged process. The Court foreshadowed that stage one would at least deal the questions of whether any indemnity costs orders should be made against Riva in both sets of proceedings instead of the costs orders on the ordinary basis and the Bell Lawyers v Pentelow issue. The Court also foreshadowed that it would deal with the determination of a specified lump-sum costs order at stage two, after it had determined the preliminary issues.
6. The Court's fourth judgment mostly dealt with stage one issues. But to the extent the Court considered fixing a specified gross sum costs order it was entering upon stage two prematurely. The Court did not make any final determination of that issue so that did not cause prejudice to any party. It is clear from the fourth judgment that the Court left open the possibility of further evidence being adduced before a final specified gross sum costs order was made. It also emerged, as the Court indeed suspected from the material cited above, that there was material which the Court had overlooked.
7. But that does not undermine the fundamental problem that prolixity and repetitiveness and poor organisation, particularly on the side of the solicitors. These proceedings have taken far longer procedurally to be brought to finality than they should be. On the solicitors' side, there has been an undisciplined lack of concise identification of the real issues in dispute, the changing of evidence and a lack of self-insight as to these defects in presentation.

The Parties' Submissions

1. On the issue of what costs order should be made in respect of the inactive phase of both proceedings the parties put competing submissions, the core contentions of which may be briefly summarised and analysed.

Analysis of Riva's Submissions

1. Riva submits that the Court should make no order as to costs for the inactive period in both proceedings. The inactive period in the receiver proceedings is from 12 April 2018 until the present, a period of six years. The inactive period in the damages proceedings is a period from 1 December 2019 to the present, a period of 4 years and 5 months. Riva submits that the Court should not make any costs order in favour of the solicitors because of their disentitling conduct during that period and because such an order would not accord with the strictures of the Civil Procedure Act 2005, Division 6.
2. The Riva parties also seek to be heard on the issue of their costs of their 13 March 2020 Notice of Motion. Riva submits that there is a period from 13 March 2020 to 31 August 2020 that is within the inactive part of these proceedings that is covered by a potential costs order in Riva's favour.
3. The Court indicated in its orders on 31 August 2020 on the same issue that unless a party indicated that a different costs order should be made, that the Court would order each party to pay its own costs in relation to the solicitors' motion to vary an order requiring it to provide metadata of the two fee agreements. Riva now seeks to be heard to argue that a different costs order should be made. Brief oral argument on that question will be permitted when the Court resumes in these proceedings and any issue about offsetting costs orders will be considered at the same time.
4. But Riva's main argument is that the solicitors have engaged in disentitling conduct during the inactive period due to incompetence and inefficiency, which prevents them from recovering any costs for that inactive period. This is a persuasive argument and is also put not just as disentitling conduct but his conduct in contravention of Civil Procedure Act 2005 Division 6.
5. The solicitors have sought to answer main elements of Riva's argument which are listed in the subparagraphs below. But the solicitors answers do not meet Riva's argument, as is explained below.
6. Riva relies upon the following alleged disentitling conduct of the solicitors during the inactive period: 1. Riva contends the application for costs has exceeded the substantive part of the proceedings by many multiples. That is undoubtedly true. The solicitors blame this situation on both parties due to lack of coordination in the preparation of Court books. But even that were right, it would not justify the solicitors having an order for costs for the inactive period any more than Riva. 2. Riva contends the solicitors have filed at least half a dozen affidavits trying to advance their claim as to costs. This is true and only one affidavit should have been required. The numbers of affidavits filed is evidence of the complete disorganisation of the solicitors in the presentation of their case. The solicitors cannot blame this lack of coordination from the other side as this is the evidence that the solicitors are originating. 3. Riva contends the solicitors have failed to comply with Court ordered timetables frequently, both as to time and as to page limitations on submissions. This is true. The solicitors say that Riva has also failed to comply with timetables. This is also true but the default has been greater on the solicitors side. 4. Riva contends the solicitors have failed to paginate exhibit notes. Small this may seem this and the failure to properly organise pagination are continually frustrating feature of the solicitors preparation of the documentation in these proceedings. 5. Riva contends updating evidence has not been true updating evidence but has commenced to give an account of events from the beginning, causing repetition, waste, contradiction and anomalies, including the annexure of the same documents in non-identical form. This is also true. Although the Court has not yet embarked on a final basis on stage two consideration in relation to the quantum of costs 6. Riva contends the solicitors affidavits have exhibited partial affidavits. The solicitors seek to explain this by saying that the Court invited that course and that is what they did it. That is correct in part. The Court did invite the parties to put in the court book parts of affidavits rather than the whole of the evidence. But that was clearly conditioned upon the commonsense idea that the Court did not believe needed to be explained, that the parts of the affidavits which were included would be able to be comprehended on their own. The problem with the parts of affidavits that were included was that they were almost incomprehensible because of the way they were divided. 7. Riva contends the solicitors included inclusion of large amounts of objectionable material, including hearsay. This is true and was very wasteful of court time to consider. 8. Riva also contends that the directions made by the Court for the solicitors to draw up a comprehensive schedule claiming the quantum of costs, cross-referenced to the Court Book have led to multiple versions of the schedule being produced. This is a valid criticism of the solicitors conduct of the inactive part of the proceedings.
7. Riva's case is put in several other ways, but these are the core contentions to be considered and which in the Court's view have been made out. Thus, subject to the solicitors submissions concerning their success in relation to the fourth judgment, no order for costs should be made with respect to the inactive period of either of these proceedings.
8. Riva should take no comfort from these findings, as it has taken a number of legal points which have proven to be of no substance.

The Solicitors' Submissions

1. The solicitors' primary submission is that, so far as stage one issues were determined in the fourth judgment, the solicitors have had a substantial degree of success. They submit they: obtained an order for indemnity costs; won the Chorley exception issue; and managed on the third issue to prove that there was a costs liability to the two entities, FC1 and FC2. They submit this should be regarded as a measure of success.
2. The Court agrees with this submission. The solicitors have had a measure of success on the issues decided in the fourth judgment that had been raised by the Riva parties: Riva's opposition to an award of indemnity costs, Riva's pursuit of the Chorley exception point, and Riva's denial of the legal recoverability of costs billed by FC1 and FC1. The solicitors should recover some costs for these successes.
3. But these successes do not entitle the Riva parties to a general order for costs for all their legal expenses in the whole of the inactive part of the proceedings. Because of their poor and inefficient conduct of inactive period of these proceedings leading up to the fourth judgment there will not be a general order as to costs in the solicitors' favour for the inactive period. The costs order in the solicitors favour will be strictly limited to their general success in relation to the issues determined in the fourth judgement. Some costs in respect of their success in the fourth judgement will be awarded on the ordinary basis. But those costs will be limited in amount to something which is reasonable and proportionate and will be limited so as not to lead to another complex costs argument.
4. The Court will limit the costs that the solicitors can claim will be those which the Court estimates would be required for the reasonably efficient preparation by competent solicitors of the evidence and submissions required to present the issues which were determined in the fourth judgment. Given the conduct of these proceedings by the solicitors in their inactive period, the Court has no confidence that the actual costs that the solicitors will claim they have incurred will bear any rational relationship to what costs would have been incurred by competent and efficient solicitors undertaking the same task. The Court cannot allow further time to be wasted in arguing about ambit claims for costs in relation to the fourth judgment.
5. The Court estimates that from its knowledge of the issues and the evidence that a reasonably competent and efficient solicitor would have and should have accrued no more than $40,000 in costs and disbursements in preparing for the trial of the issues in the fourth judgment. The solicitors mostly but not entirely succeeded on the issues in contest on the fourth judgment and Court will award the solicitors 75% of their costs of preparing for the trial of the issues on the fourth judgment. The solicitors will have to establish that they have incurred recoverable costs of at least $40,000, the measure of what a reasonably competent and efficient solicitor would have expended. If they do establish that they have incurred such an amount, then they will be permitted to recover no more than $30,000 in costs from Riva in respect of their success on the fourth judgment. But this will be subject to any offset arguments that Riva has arising out of the 13 March 2021 motion.

The Future Conduct of the Proceedings

1. This case shows many features of intemperate and disproportionately expensive conduct of proceedings. Palmer J explained in Re Sherborne Estate (No. 2) (2005) 65 NSWLR 268; [2005] NSWSC 1003 (at [29] - [30]), that Uniform Civil Procedure Rules 2005 ("UCPR"), r 42.4, complementing the directives of Civil Procedure Act 2005, ss 56 and 60, is designed to neutralise such conduct of proceedings so as to keep the costs to the parties proportionate to the importance and complexity of the subject matter of the dispute. A cost capping order is anticipatory and should therefore be made in advance of the costs being incurred: Nudd v Mannix [2009] NSWCA 327 at [23] - [27] and see also Delta Electricity v Blue Mountains Conservation Society Inc [2010] NSWCA 263.
2. These parties should not be accruing significant costs liabilities in respect of a a dispute originating out of a costs assessment and which were only active proceedings for relatively short periods of time and did not involve contested final hearings on the merits. These circumstances and the ill-disciplined and inefficient conduct of the proceedings in their inactive phase particularly by the solicitors, suggests that in taking seriously the Court's obligation to keep costs "proportionate to the importance and complexity of the subject matter in dispute" within Civil Procedure Act s 60 that the Court should now constrain the incurring of future legal costs in these proceedings.
3. The Court will therefore of its own motion require the parties to show cause as to why it should not make an order under UCPR, r 42.4 setting the maximum recoverable costs that may be incurred by either party from now until the conclusion of these proceedings in the sum of $10,000, or such other sum as the Court may think fit after hearing submissions. The Court will appoint a date suitable to the parties for a hearing to take place on what the maximum costs figure should be.
4. The Court is familiar with the evidence about the various claims for costs that have already been made in these proceedings and is sufficiently familiar with the background to determine an appropriate maximum costs figure and indicates that a figure of $10,000 should be considered. To save costs the parties will not be permitted to file evidence or written submissions on this issue but must limit their arguments to no more than 10 minutes each on the appointed date. Once that is done the Court will make orders for the determination of the balance of the remaining issues in the proceedings.

Conclusion and Orders

1. Accordingly, the Court makes the following orders and directions: 1. In these orders the defendant in the Riva damages proceedings (proceedings 2017/59269) and the plaintiffs in the receiver proceedings (proceedings 2017/166645) will be referred to in these orders as "the FCL parties" and the plaintiff in the Riva damages proceedings and the defendant in the receiver proceedings will be referred to as "Riva". 2. Order that Riva pay costs on the ordinary basis to the FCL parties in both the Riva damages proceedings and the receiver proceedings in respect of the issues determined in the November judgment given in these proceedings on 28 November 2022 (being [2022] NSWSC 1624) but such costs may only be assessed and recovered subject to the limitations set out in Order 3. 3. The FCL parties may only recover 75% of the costs they have actually incurred in the preparation of the issues for trial in the November 2022 judgment and provided the FCL parties can establish they have incurred costs of at least $40,000 in preparation of those issues then they may recover no more than $30,000 (being 75%) on account of their said costs, on the basis that a reasonably competent and efficient solicitor would have expended no more than that sum, and no other amount in costs is authorised to be recovered by the solicitors by reason of this order. 4. Appoint 9.30am on 23 May 2024 or such other date as is arranged with the Associate to Slattery J for the parties to show cause why an order should not be made of the Court's own motion under Uniform Civil Procedure Rules 2005, r 42.4, prohibiting any party to these proceedings recovering any more than $10,000, or such other sum as the Court may fix, for costs incurred from the date of today's orders until the conclusion of these proceedings. 5. The hearing appointed by Order 4 is an oral hearing and the parties are not permitted to file any written submissions. 6. Note that on 23 May 2024 the Court will also hear short argument on the costs of Riva's motion of 13 March 2020 and make directions for the further conduct of these proceedings.

Amendments 17 June 2024 - Amendment made to [3] to clarify period of representation. 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: 17 June 2024