Russo & Ors v Russo & Ors

Supreme Court of NSW|2016-08-16|Before: Slattery J

EX TEMPORE Judgment

This is my fourth judgment in these proceedings. The plaintiffs now move for a specified gross sum costs order against the third defendant under Civil Procedure Act, s 98(4)(c), instead of assessed costs. For convenience, I will describe the order being sought as a "lump sum costs order". The Court has already made an order for costs against the third defendant on the ordinary basis.
For the exercise of the Court's discretion under s 98(4)(c), the plaintiff relies on the complexity of the proceedings and the incapacity of the unsuccessful party to satisfy any costs liability.

Applicable Legal Principles

If the additional costs of a formal costs assessment would disadvantage the successful party due to the potential inability of the unsuccessful party to pay the costs order in any event, this may incline the Court to make a lump sum costs order: Harrison v Schipp (2002) 54 NSWLR 738; [2002] NSWCA 213. The capacity of the unsuccessful party to satisfy any costs liability has been recognised as a relevant consideration in the making of a lump sum costs order: Hamod v New South Wales [2011] NSWCA 375 ("Hamod") at 816-817 and Penson v Titan National Pty Ltd (No 3) [2015] NSWCA 121.
Moreover, if a Court can say, based upon its prior experience of the litigation in question, that any further costs assessment is likely to be unduly protracted and will add to costs unnecessarily, then the Court may take that into account in deciding whether to make a lump sum costs order: see Harvey v Barton (No 4) [2015] NSWSC 809.

The Course of the Proceedings

The substantive hearings in this matter took place on 28 August 2014 and then between 8 and 12 September 2014, ultimately concluding on 26 November 2014. The Court gave its principal judgment on 2 February 2015: Russo v Russo [2015] NSWSC 17.
After the principal judgment the parties advanced further submissions in relation to the Court's 2 February 2015 principal reasons, which submissions resulted in two further hearings on 17 February and 25 March 2015 respectively.
On 20 April 2015 the Court gave its second judgment and made certain orders, declarations and orders for costs: Russo v Russo (No. 2) [2015] NSWSC 449. The orders made on 20 April 2015 required the first to third defendants to serve on the plaintiffs an account, verified by affidavit, in relation to each of the joint ventures, the subject of the proceedings.
The plaintiffs have settled the proceedings against the first and second defendants since 20 April 2015. This leaves only the third defendant as an active defendant. But the third defendant has failed to comply with the declarations, orders and directions that the Court made on 20 April 2015. On 3 December 2016, after protracted non-compliance with the Court's orders of 20 April 2015, the Court ordered that the third defendant produce all accounting records in his possession so that the plaintiffs could perform an accounting in respect of the joint ventures: Russo v Russo (No. 3) [2015] NSWSC 1849.
The plaintiffs filed a Notice of Motion for contempt on 5 November 2015, seeking the issue of an arrest warrant against the third defendant for his continuing non-compliance with the Court's orders of 20 April 2015. This Motion for contempt came before the Court on a number of occasions. Ultimately on 13 April 2016 the plaintiffs decided not to proceed on the Motion and the Court made orders for the return by the plaintiffs of certain documents that had been produced by the third defendant to the plaintiffs for inspection.
These proceedings have been complex, have taken considerable time, and have resulted in costs orders against the third defendant.

Issues on the Present Motion

The plaintiffs seek to establish two matters. First, they seek to show that mainly by reason of the third defendant's impecuniosity this is a case where an order should be made. Secondly, the plaintiffs advance material that they submit should justify the making of a lump sum costs order in a particular sum. These reasons now deal with each of these matters in turn.
The third defendant's impecuniosity is undoubted. His affidavit of 20 April 2016 attaches his statement of personal assets and liabilities. He states he has total assets of $100,765.34, including superannuation funds of $65,500. But he indicates that one of his assets is a non-recoverable personal loan of $25,410.84. So he declares his assets for consideration, before taking into account other external liabilities, are $75,354.45.
He then lists a series of liabilities amounting to $104,380.01. So he says, and I accept, that his personal balance sheet represents a net deficiency of $29,025.50 (being assets of $75,354.45, less liabilities of $104,380.01).
Mr Russo appears for himself. He has not sought to resile from anything said in his 20 April 2016 affidavit. Indeed, the general tenor of his submissions seeks to affirm what is said in that affidavit.
I conclude from this material that the third defendant is unlikely to be able to meet any costs order made against him. But I also find that based upon the Court's prior experience of these proceedings that were a costs assessment to proceed, it would likely be protracted.
The Court will exercise its discretion to make a lump sum costs order because of the third defendant's incapacity to satisfy any costs liability, the probability of a protracted costs assessment and the complexity of the proceedings.

The Assessment of a Lump Sum Costs Order

The Court now turns to the issue of the quantification of a lump sum costs order. Mr Farrar is the second solicitor who has acted for the plaintiffs. The first firm of attorneys for the plaintiffs were Messrs Maloney Lawyers. The plaintiffs' evidence on the Motion includes a statement of account dated 21 August 2013 from Maloney Lawyers which was delivered to the plaintiffs when Maloney Lawyers ceased to act for them.
The second component of the plaintiffs' legal costs are those incurred by Farrar Lawyers, the plaintiffs' current lawyers. Although the solicitors for the plaintiffs changed, many of the same counsel continued to be retained throughout.
The plaintiffs' total costs and disbursements in the proceedings as at 22 April 2015 (a date the significance of which I will explain shortly) were $492,857.59. This sum is broken up as follows: 1. the total costs and all disbursements including counsel's fees and court filing fees, expended during the retainer of Maloney Lawyers are $262,617.57, inclusive of GST, 2. the total professional costs and internal disbursements incurred during the retainer of Farrar Lawyers are $130,000, inclusive of GST, and 3. the total disbursements incurred with Farrar Lawyers externally (mainly for counsel) are $100,162.60, inclusive of GST.
The date 22 April 2015 is significant. The date is two days after the making of the orders with which the third defendant consistently failed to comply and which ultimately resulted in the filing of a Motion for contempt in November 2015. As has earlier been indicated that Motion for contempt has still not been resolved and no costs orders have been made in respect of it.
The plaintiffs have now taken the view that they should cut their losses and do the best they can to obtain some judgment against the third defendant, which may perhaps lead to his bankruptcy. This is in large part no doubt because of the third defendant's apparent impecuniosity and his non-compliance with the Court's orders.
When quantifying a lump sum costs order the Court should ensure that the costs included as part of the final quantification are all costs that would be recoverable on a costs assessment. The plaintiffs have excised from their claim all costs incurred after 22 April 2015. This was done to anticipate any argument from the third defendant that those costs should not be the subject of a lump sum costs order because they related only to the unresolved contempt claim and not the main proceedings on which the plaintiffs were successful with the benefit of a costs order. That is, in my view, an appropriate concession.
Mr Farrar says in his evidence that from his experience of costs assessments in the Federal Court, the Supreme Court, the District Court and the Local Court, that it is not uncommon for a discount of about 70 percent from actual professional costs incurred to be allowed. In his experience, external disbursements such as Court filing fees and legal support services are usually allowed at a hundred percent on costs assessment and counsel's fees are generally allowed at a costs assessment at close to 85 or 90 percent of what is claimed. The Court accepts this evidence.
To avoid unnecessary argument Mr Farrar puts the plaintiffs' case on the basis that the total costs incurred of $492,857.59 should be discounted by 70 percent across the board. This concedes to the third defendant an important item that the plaintiffs could have claimed upon a contested costs assessment: internal and external disbursements could have been recouped at between 85 percent and 100 percent of actual costs. These are not insignificant components of the plaintiffs' costs claim on an assessment.
That concession being made, it is difficult to see how it could possibly be said that on a costs assessment that the third defendant could ever do much better upon a costs assessment than holding the plaintiffs to no more than 70 percent of their actual costs. In my view, the result on a costs assessment is likely to be far worse for the third defendant: a larger percentage of the plaintiffs' total actual costs would be likely to be awarded against the third defendant.
I am otherwise satisfied that the evidence shows that the amounts claimed have been incurred as costs liabilities of the plaintiffs. The figure being sought is 70 percent of $492,857.59, which is $345,000.31. Subject to one matter, I am prepared to make a lump sum costs order in that amount.
The third defendant did field an argument that it had not been demonstrated that these amounts had been paid. In my view, the plaintiffs do not have to do that. They have established on the evidence the liability to pay those amounts at a prima facie level. That is sufficient for this order to be made.

Conclusion and Orders

For these reasons, I will order that a lump sum costs order be made in the plaintiffs' favour against the third defendant in the amount of $345,000.31.
Accordingly, the Court makes the following orders: 1. Judgment for the plaintiff against the third defendant for costs in the sum of $345,000.31.

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: 19 August 2016

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