Royal Australian Naval Reserve Rifle Club Inc v New South Wales Rifle Association Inc

8 On 24 September 2009 Forster J heard the defendant's motion for security and on 30 September 2009 delivered judgment. It is relevant to the motion before me to note his Honour's observations concerning the plaintiff's impecuniosity at [43]-[45]: "[43] Having regard to the conclusion I have reached in relation to issue (i), it is unnecessary for me to consider this issue. However, as the parties addressed themselves to this issue, and in the event that this matter goes further, I propose to deal with it, albeit very briefly.

[44] It was common ground between the parties that the assets of the Navy Club consists of approximately $15,000 in cash and a further $5,000 which could be turned into cash if required.

[45] There was also evidence before me, which evidence was not challenged, to the effect that the NSWRA's costs of these proceedings, as assessed on the ordinary basis, would be somewhere between $60,000 and $65,000. Quite clearly, the assets of the Navy Club would not be sufficient to satisfy an order for costs made against it, particularly once it paid its own legal costs. Accordingly, I am satisfied that this requirement of the Rule is satisfied."

9 It was not until 6 January 2010 that the plaintiff's solicitors wrote to the defendant's solicitors stating that they were instructed to re-list the matter before Forster J to make the application that I am now hearing. The letter set forth brief details of the plaintiff's costs of the security for costs application totalling $9,975.75.

10 On 2 February 2010 the defendant's solicitor (having returned from leave) wrote to the plaintiff's solicitors seeking advice as to the basis upon which an application would be made under r 42.7, and stating that it appeared that the particularised costs were solicitor/client costs in which case they could not see any basis for an award of costs on that basis, and in any event considered the claim for solicitor's costs to be excessive.

11 By letter dated 12 February 2010 the plaintiff's solicitors replied stating that the costs order made against the defendant was for the plaintiff's party/party costs; disputing that the particularised costs for the plaintiff's solicitor were excessive; and stating that unless a substantive response was received within seven days the plaintiff would apply to the Court as foreshadowed.

12 By email dated 22 February 2010 the defendant's solicitors queried why the costs of the security for costs motion should be dealt with now and stated that with regard to the quantum claimed it appeared to be calculated on a solicitor/client basis and, if that was so, queried the basis on which the plaintiff was entitled to solicitor/client costs as distinct from party/party costs. Those queries were repeated in the defendant's solicitor's email of 18 March 2010 where it was also noted that Forster J was not sitting, and in the defendant's solicitor's letter of 19 March 2010.

13 On 6 March 2010 the plaintiff filed the notice of motion that I am now hearing and an affidavit of Christopher Nicholls, solicitor, sworn on 26 February 2010 itemising costs totalling $9,975.75 incurred by the plaintiff in relation to the defendant's security for costs application heard by Forster J. The affidavit stated: "All items have been costed in accordance with the Standard Costs Agreement and Standard Costs Disclosure between Messrs McIntosh McPhillamy & Co Solicitors [the plaintiff's solicitors] and the plaintiff dated 1 June 2009." 14 On 22 March 2010 the matter was listed before Registrar Walton who (a) ordered the plaintiff to respond to the defendant's solicitor's correspondence dated 22 February 2010 (and repeated in email correspondence dated 18 March 2010) advising the basis upon which the plaintiff contended that the costs order should be paid forthwith having regard to UCPR r 42.7(2), and advising whether the plaintiff's costs as set out in the affidavit of Mr Nicholls sworn on 26 February 2010 are calculated on a solicitor/client basis or party/party basis and, if the latter, why the plaintiff says it is entitled to costs calculated on that basis, on or before 29 March 2010; (b) made directions as to service of evidence in relation to the plaintiff's notice of motion; and (c) ordered the plaintiff to pay the costs of the hearing before him.

15 By letter dated 29 March 2010 to the defendant's solicitors, the plaintiff's solicitors referred to the orders made by the Registrar requiring particularisation of the basis upon which the plaintiff makes its claim. The letter provided the following particulars: "In the ordinary course, Rule 42.7 of the Uniform Civil Procedure Rules 2005 (NSW) applies and the time for payment of any costs order is at the conclusion of the proceedings. As you are aware, it is not contended by the Plaintiff that the proceedings have now concluded.

The Plaintiff contends that the costs ought be payable forthwith as the Defendant's Application for security for costs was a discrete and separately identifiable aspect of the proceedings, the basis upon which the application was advanced related to an individual rather than any conduct of the Plaintiff, and the proceedings have some time and distance to run prior to their ultimate disposition: see for example Fiduciary Limited v Morningstar Research Pty Limited (2002) NSWSC 432 (re predecessor of Rule 42.7 Part 52A Rule 9 sub-rule 1." 16 On 23 April 2010 there was an exchange of emails between the solicitors for the parties. The defendant's solicitors stated that the Registrar had made orders that the plaintiff advise whether the costs in the affidavit of 26 February 2010 were calculated on a solicitor/client or party/party basis and, if the latter, why the plaintiff was entitled to solicitor/client costs; and that the plaintiff had not addressed those two matters. The plaintiff's solicitors replied stating that they were advised by counsel who appeared before the Registrar on 22 March 2010 that the Court noted that the plaintiff's claim was for party/party costs. The defendant's solicitors replied stating (inter alia) that they repeated the question they had been asking since 2 February 2010, namely, whether the assessment provided (in the affidavit of 26 February 2010) was party/party costs or solicitor/client costs.

17 Rule 42.7 of the Uniform Civil Procedure Rules 2005 provides: " 42.7 Interlocutory applications and reserved costs

(1) Unless the court orders otherwise, the costs of any application or other step in any proceedings, including: (a) costs that are reserved, and (b) costs in respect of any such application or step in respect of which no order as to costs is made, are to be paid and otherwise dealt with in the same way as the general costs of the proceedings. (2) Unless the court orders otherwise, costs referred to in subrule (1) do not become payable until the conclusion of the proceedings." 18 Thus, the normal rule is that costs are payable at the conclusion of the proceedings but the Court is empowered to depart from the normal rule by making an order that costs be payable forthwith. 19 Where a costs order is made before the conclusion of the proceedings, factors which have caused the courts to depart from the normal costs rule by ordering that costs be assessed and payable forthwith include the following: (a) where the costs order is relevant to a discrete, separately identifiable aspect of the proceedings; (b) where there is some unreasonable conduct by the party against whom the costs have been ordered; (c) where there is likely to be a fairly long time before the proceedings are disposed of. See Fiduciary Ltd v Morning Star Research Pty Ltd [2002] NSWSC 432, 55 NSWLR 1 at [11]-[13] (Barrett J); Hamod v State of NSW [2007] NSWSC 707 at [5] (Simpson J); ASIC v Rich [2003] NSWSC 297 at [86] (Austin J); Jazabas Pty Ltd v Haddad [2006] NSWSC 880 (Simpson J) (successful security for costs application: order that costs be payable to successful defendants forthwith); Perpetual Trustee Co Ltd v McAndrew [2008] NSWSC 790 (Harrison AsJ) (application for summary judgment doomed to failure); Herbert v Tamworth City Council (No 4) [2004] NSWSC 394, 60 NSWLR 476 at [30] (Sperling J).

LEGAL PRINCIPLES: SPECIFIED GROSS SUM FOR COSTS 20 Section 98 of the Civil Procedure Act 2005 relevantly provides: " 98 Courts powers as to costs

(1) Subject to rules of court and to this or any other Act: (a) costs are in the discretion of the court, and (b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and (c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis. (2) Subject to rules of court and to this or any other Act, a party to proceedings may not recover costs from any other party otherwise than pursuant to an order of the court. (3) An order as to costs may be made by the court at any stage of the proceedings or after the conclusion of the proceedings. (4) In particular, at any time before costs are referred for assessment, the court may make an order to the effect that the party to whom costs are to be paid is to be entitled to: … (c) a specified gross sum instead of assessed costs..." 21 An order for a specified gross sum is a procedure for summary assessment of costs by the court. It is to be distinguished from a detailed assessment of costs by a costs assessor. Summary assessment has the advantage of speed and economy. Where practicable, it is consistent with the overriding purpose of the CPA and rules of court, in their application to civil proceedings, "to facilitate the just, quick and cheap resolution of the real issues in the proceedings" and consistent with the principle of proportionality of costs: CPA ss 56(1), 60. In Hall v Poolman [2007] NSWSC 1330 at [392] Palmer J said: "In applying the wide discretion conferred by CPA s.98 the Court must have regard to the principle that the purpose of the Act and the Rules is to promote the just, quick and cheap resolution of the real issues in proceedings in such a way that the cost to the parties is in proportion to the importance and complexity of the matter in dispute: CPA s.56(1), (2), s.60…"

22 The fundamental purpose of the power to order a specified gross sum for costs was identified in Sherborne Estate (No 2): Vanvalen v Neaves [2005] NSWSC 1003 by Palmer J held: "37. However, when an order is made under s 98(4)(c), the assessor has no part to play: the costs order itself specifies the sum which is to be paid. Such an order is commonly made by consent of the parties when they wish to avoid the expense or delay of an assessment. But the exercise of the power under s 98(4)(c) is not confined to that circumstance.

38. The fundamental purpose of the power conferred by the Civil Procedure Act s 98(4)(c) and its precursors is to enable the parties to avoid the expense, delay and aggravation involved in protracted litigation which may arise out of contested costs assessments, particularly where the costs have been incurred in the same way as would an assessor, but it arrives at an estimate of the proper costs to be allowed by examining, on the basis of particulars provided, whether the quantification put forward by the successful party is logical, fair and reasonable: Leary v Leary [1987] 1 WLR 72; [1987] 1 All ER 261; Beach petroleum NL & Claremont Petroleum NL v Johnson (No 2) (1995) 57 FCR 119 at 120, 123; Harrison v Schipp (2002) 54 NSWLR 738 at 743 [22]."

23 Principles which inform the exercise of the discretion to award a specified gross sum were considered in Idoport Pty Ltd v National Australia Bank Ltd [2007] NSWSC 23 by Einstein J and are stated in the headnote as follows: "(1) The purpose of the jurisdiction to award costs as a gross sum is to avoid the expense, delay and aggravation involved in protracted litigation arising from the taxation of costs. A gross sum assessment, by its very nature, does not envisage a process similar to a traditional taxation or assessment. (2) The court must be confident that the approach taken to estimate the claimed costs is logical, fair and reasonable. It must prevent prejudice to the unsuccessful party by overestimating the costs, while at the same time avoiding an injustice to the successful party by applying an arbitrary fail safe discount on the estimate submitted to it. (3) The fairness parameter includes the court having sufficient confidence in arriving at an appropriate sum on the materials available: the gross sum can only be fixed broadly having regard to the information before the court. (4) Nevertheless, the power to award a gross sum must be exercised judicially, by reference to the particular case before the court, and after giving the parties an adequate opportunity to make submissions on the matter. (5) It is not arbitrary exercise of the judicial power for the court to weigh up competing factors and make a determination even if the task cannot be undertaken in a mathematical, precise or formulaic manner. (6) In applying a broad approach to gross sum awards, courts have invariably applied a discount to amounts claimed. (7) The exercise of the power to award gross sum costs should rest with the trial judge, whose familiarity with the proceedings aids in the making of a "logical, fair and reasonable" estimate. (8) The present proceedings were far removed from an ordinary commercial case, involving wide-ranging, complex and fluid issues and a substantial volume of evidence on both sides. Faced with a claim of the size made by the plaintiff (which exceeded the defendant bank's net worth), the defendants were plainly entitled to defend themselves with all the energy and resources at their command. (9) The work carried out on behalf of the defendants, although it involved a "Rolls Royce" approach, was called for in the circumstances of the case. (10) There was sufficient evidence before the court to come to a "logical, fair and reasonable" conclusion. (11) Applying the discount referred to in the authorities, the defendants were entitled to gross sum costs in the amount of $50 million."

24 These principles were applied in Hamod v State of NSW (No 13) [2009] NSWSC 756 at [3]-[5] (Harrison J) and approved in SDA Australia Pty Ltd v Ashfield Municipal Council [2009] NSWLEC 123 at [16] (Lloyd J). See also Williams Advanced Materials Inc v Target Technology Company LLC [2004] FCA 1405 at [112]-[113] (Bennett J).

25 In England a more robust approach has been taken to specified gross sum costs orders, which are there described as "summary assessment". The Costs Practice Direction 13.1 requires the court to consider in every case whether to make a summary assessment. Paragraph 13.2 sets out the situations in which the court should normally make a summary assessment. It should do so at the conclusion of the trial of the case that has been dealt with on the fast track and at the conclusion of any other hearing which has lasted not more than one day. Summary assessment hearings are meant to be brief and in cases where costs are likely to be summarily assessed the parties are required to be prepared for the summary assessment and to provide the court with all the necessary information 24 hours before the hearing: paragraph 13.5 SUBMISSIONS 26 The plaintiff submits that orders should be made that the costs be payable forthwith because (a) the defendant's unsuccessful security for costs motion was a discrete and severable part of the proceedings; (b) the proceedings have some distance to run; (c) the plaintiff is impecunious and its limited resources were diverted to fighting the defendant's unsuccessful security for costs application; (d) by reason of its impecuniosity there is a risk of stultification or delay in progressing the proceedings if the costs have to be assessed. The plaintiff submits that the Court should also make a specified gross sum costs order having regard to the above matters and the itemised costs information that has been placed before the Court.

27 The defendant submits that the orders sought should be refused having regard to the following matters:

(a) the parties are incorporated under the Associations Incorporation Act 1984 and therefore the security for costs provision in s 1335 of the Corporations Act 2001 does not apply; (b) this is a fight between parties using members' funds; (c) if the plaintiff wants to run this litigation, it is open to it to levy its members; (d) the proceedings were commenced urgently in May 2009 yet the plaintiff did not proceed expeditiously in that it did not file its evidence in reply as required by 2009 directions; (e) there was a substantial delay of three months after Forster J delivered his judgment before the plaintiff raised the costs issues it is now agitating; (f) thereafter the defendant on several occasions sought information from the plaintiff as to the costs orders that it sought but the plaintiff did not respond satisfactorily such that eventually the Registrar made an order on 22 March 2010 that it do so and ordered the plaintiff to the defendant's costs of that hearing; (g) if the matter were to proceed to a costs assessment before a costs assessor, the costs assessment should only take two or three months to conduct; (h) the plaintiff was tardy in complying with the Registrar's directions; (i) all or most interlocutory applications constitute a discrete aspect of the case yet the general rule is that costs do not become payable until the conclusion of the proceedings; (j) if a "forthwith" order where to be made as the plaintiff submits, it should also be made in respect of the costs order in the defendant's favour before the Registrar because they are so closely linked; (k) the evidence of the plaintiff's impecuniosity relied on by the plaintiff stated in Forster J's judgment at [43]-[45] does not cast light on whether the costs of the plaintiff have been deferred by agreement until the end of the proceedings or whether they have been paid; (l) the plaintiff did not disclose notify the defendant that it was relying on its impecuniosity as a factor in the exercise of the discretion until the hearing before me commenced. Accordingly, the defendant has not addressed that issue in evidence although it is content to proceed with the hearing of the plaintiff's motion without adjournment; (m) there is no hard evidence before the Court that the proceedings will be stultified if the orders sought are not made; (n) the defendant cannot necessarily be viewed as well funded; (o) central to the substantive dispute between the parties is the Captain of the plaintiff whom Forster J described in his judgment as "rightly or wrongly…the bete noire so far as [the defendant] is concerned": at [18];

28 In reply, the plaintiff (a) concedes that there was a lengthy delay by the plaintiff in raising the issue of these exceptional costs orders; (b) says that it indicated in its letter of 12 February 2010 that it was seeking party/party costs; (c) accepts that the costs itemised in the affidavit are solicitor/client costs and suggests that they should be discounted by 25 per cent to represent party/party costs; (d) says that a costs assessment would be likely to take substantially longer than the defendant's estimate; (e) says that there is no agreement between the plaintiff and its solicitors to defer costs payable and that fees have been rendered.

29 The factors identified by the defendant are cumulatively weighty, notwithstanding they had been answered to some extent by the plaintiff's submissions in reply which I accept. However, on balance, I am persuaded that I should order the defendant to pay the plaintiffs costs ordered by Forster J on 30 September 2009 forthwith. My reasons are that (a) the security for costs application was a discrete and severable part of the proceedings; (b) it appears to be a fairly long time before the proceedings will be disposed of; (c) the evidence referred to at [8] above is sufficient to indicate that the plaintiff is impecunious and it appears that its limited resources have been substantially diverted to contesting the security for costs application on which it succeeded; (d) if the costs to which it is entitled are not payable until the end of the proceedings, there appears to be some risk of delay in progressing the proceedings because of lack of funds although the extent of that risk is unclear on the material before me. However, I propose to order that the costs order made in favour of the defendant by the Registrar also be payable forthwith because it is so closely linked to the costs order in favour of the plaintiff made on 30 September 2009. 30 I am also persuaded that I should make a specified gross sum costs order as sought by the plaintiff. Generally, I think, the decision whether to make such an order should rest with the judge that heard the matter. In the present case that is not possible. However, I have sufficient confidence in arriving at a fair and reasonable conclusion given that the matter agitated before Forster J was straightforward and the plaintiff's itemised solicitor/client costs appear reasonable and are not contested, although they will have to be discounted to arrive at party/party costs. The parties are a rifle club and a rifle association locked in an affiliation dispute. They have been diverted by interlocutory costs issues for the better part of the year since these supposedly urgent proceedings were commenced. Sending the costs off for assessment will only fuel the diversion. The sooner that interlocutory costs issues can be put behind them and the proceedings progressed to trial the better (if the proceedings cannot be resolved by agreement, which the plaintiff told me is the parties' object, if possible). A specified gross sum costs order will facilitate that result.

31 The Court must be astute to prevent prejudice to the defendant by overestimating the costs but also to prevent prejudice to the plaintiff by applying too great a discount. The solicitor/client costs itemised by the plaintiff in evidence total $9,975.75. The plaintiff proposes that they be reduced by 25 per cent to equate them to party/party costs. In circumstances where there is no direct evidence before me as to what the discount should be, I propose to exercise particular caution and assess the party/party costs at two thirds of the sum claimed; that is, to assess them in the sum of $6,650.

32 I decline to order the defendant to pay the costs of the plaintiff's notice of motion. The reason is that the plaintiff has succeeded in good measure because it relied on its impecuniosity yet did not disclose that it relied on that factor until after the hearing before me commenced. In the circumstances, I propose to order that the costs of that notice of motion be costs in the cause.

33 Almost a year has passed since these supposedly urgent proceedings were commenced. In that time the parties have spent most of their time on interlocutory costs issues punctuated by significant delays when nothing has happened. This cannot be allowed to continue. I propose to make directions to progress the matter as rapidly as possible to trial. As I understand it, the only evidentiary matters outstanding are further evidence by the defendants and the plaintiff's evidence in reply.

1. The costs ordered by Forster J on 30 September 2009 to be paid by the defendant to the plaintiff are payable forthwith. 2. The said costs are specified in the gross sum of $6,650. 3. The costs of the plaintiff's notice of motion filed on 22 March 2010 are to be costs in the cause. 4. The costs ordered by the Registrar on 22 March 2010 to be paid by the plaintiff to the defendant as agreed or assessed are payable forthwith. 5. The exhibits may be returned. 6. Direct that: (a) the defendant serve any further evidence by 8 May 2010 and the plaintiff serve any evidence in reply by 18 May 2010; (b) thereafter the parties promptly list the proceedings before the Registrar with a view to obtaining hearing dates.

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