This judgment finalises some costs issues left over from an interlocutory judgment I delivered in September last year: Salmon v Albarran (No 3) [2021] NSWSC 1200. That judgment was itself the sequel to an earlier interlocutory judgment I delivered in March: Salmon v Albarran (No 2) [2021] NSWSC 186. In this judgment I will refer to last year's judgments as J2 and J3 respectively.
I identified the parties to the proceedings and described the plaintiffs' claims made at J2 [2]-[32]. The immediate background to the present judgment is set out at J3 [3]-[8].
As recorded at J3 [3], that judgment was concerned with three notices of motion:
1. a notice of motion filed 6 October 2020 for the plaintiffs;
2. a notice of motion filed 19 April 2021 for the third defendant, Mr Brown;
3. a notice of motion filed 20 April 2021 for the first, second and fourth to eighth defendants (referred to in previous judgments, and in this judgment, collectively, as the "Hall Chadwick Partners").
For reasons given in J3, on 20 September last year I granted leave to the plaintiffs to amend their statement of claim in accordance with a proposed Second Further Amended Statement of Claim. But I made the grant of leave conditional, as against both the Hall Chadwick Partners and Mr Brown, on payment by the plaintiffs of a specified sum on account of their liability under previous costs orders made against them. Those previous costs orders concerned unsuccessful amendment applications by the plaintiffs. The sums fixed were $30,000 for Hall Chadwick Partners and $25,000 for Mr Brown.
It had been contended on behalf of the plaintiffs (see J3 [14] and [21]) that making orders for immediate payment on account of the plaintiffs' earlier costs liabilities would, or at least might, result in the proceedings being stultified. This was because Mr Salmon, the first plaintiff, claimed to be unable, or at least unlikely, to be able to raise the necessary funds. In the event, however, no problem arose. The figures specified for the defendants' costs were paid, and the plaintiffs were then able to file their Second Further Amended Statement of Claim. This happened on 22 October.
In their April 2021 notices of motion, both the Hall Chadwick Partners and Mr Brown had sought orders that the plaintiffs pay their costs thrown away by reason of any amendment to the statement of claim and that a fixed sum be paid on account of that costs liability. At the time I made my orders in September last year it was uncertain whether the plaintiffs would actually meet the orders for payments on account of their earlier costs liabilities, and it was therefore uncertain whether the amendments would actually be made to the plaintiffs' statement of claim. Thus, I did not consider that it was open to me to deal with these aspects of the defendants' motions. Instead, I held them over for later consideration.
Following the filing of the Second Further Amended Statement of Claim, the proceedings came before me for further directions on 5 November. On that occasion I made an order that the plaintiffs pay the defendants' costs "thrown away by reason of the amendments made in" the Second Further Amended Statement of Claim. I also fixed a timetable for the continuation of the proceedings on the plaintiffs' Amended Statement of Claim. That timetable involved defences being filed by the defendants and supplementary affidavits being filed by the parties (the parties had already filed their affidavit evidence, based on an earlier version of the statement of claim).
These orders disposed of the plaintiffs' October 2020 motion for amendment. It remained to deal with the residual aspects of the defendants' April 2021 motions. For this purpose, I made directions for the filing of written submissions so that I could deal with those aspects on the papers.
[2]
Application by Hall Chadwick Partners
It was submitted for the Hall Chadwick Partners that the Court should:
1. order the plaintiffs to pay the Hall Chadwick Partners' costs of their motion;
2. order the plaintiffs to pay the Hall Chadwick Partners' costs thrown away by the amendments; and
3. make an order for payment by the plaintiffs of a lump sum of account of the costs thrown away. The amount sought was $70,000.
In his written submissions, counsel for the plaintiffs opposed all of these orders. Counsel also challenged the quantum of the fixed sum sought by way of payment on account.
In making their submissions, both parties seemed to have overlooked that I had already made an order for payment of the Hall Chadwick Partners costs thrown away. I see no reason to vacate that order, which was made at a hearing which the plaintiffs were represented by counsel (albeit a different counsel than counsel who represented the plaintiffs in the earlier proceedings before me, and who prepared the written submissions). It is convenient to deal first with the application for an order for payment on account, before addressing the costs of the motion.
[3]
Payment on account
As explained at J2 [56], I have, in several cases where I considered that it would be warranted to order that interlocutory costs be assessed and paid forthwith, instead made an order for payment of a sum of money on account of the interlocutory costs liability. I see this as a preferable form of order, because it avoids the expense and distraction of a separate interlocutory costs assessment which may in the end prove unnecessary.
In the present case, I considered that such an order was warranted for the costs awarded against the plaintiffs as a result of their earlier unsuccessful amendment applications. In particular, I considered that the costs in question had been wholly wasted and that, because of the extensive nature of the amendments, and the delay in propounding them, the hearing was still some considerable time off: see J3 [24]-[25].
Counsel for the Hall Chadwick Partners submitted that essentially the same considerations applied to the costs thrown away by reason of the amendments, now that they have been made.
The first argument by counsel for the plaintiffs was that I should not make any order for payment on account at present. Counsel pointed out that the defendants had not filed their defences or their supplementary evidence (in fact the plaintiffs' supplementary evidence had not yet been filed). Counsel submitted that any changes to the defences, or supplementation of evidence, would be minor. In any event the whole issue was premature. It was simply not possible to say whether any costs had been thrown away; that would only be known when the further work had been done.
Counsel for the plaintiffs did not refer to authority on this point. Nor did the Hall Chadwick Partners' submissions in reply. The expression "costs thrown away" is not used in the Rules. But its content has been discussed in some decisions, and in textbooks.
It is convenient to begin with the decision of Davies J in Zilliotto v Hakim (No 2) [2012] NSWSC 1079. In that case it had been agreed between the parties that the plaintiff would have to pay the defendant's costs thrown away by reason of the adjournment of an earlier trial. The defendant sought to recover costs of a further conclave necessitated by the adjournment, and the costs of counsel and solicitors in working up the resumed hearing for trial.
Davies J referred to the judgment of Mukhtar AsJ in Edelman v Badower [2010] VSC 427. That case concerned a Victorian Supreme Court rule which provided that, unless the Court otherwise ordered, a party amending a pleading was obliged to pay the "costs of and occasioned by the amendment".
The expressions "costs thrown away" and "costs occasioned by" an amendment are sometimes used interchangeably in practice. But, as Mukhtar AsJ pointed out, there is a distinction between them in principle; indeed, in his Honour's view, they are mutually exclusive. Costs thrown away by an amendment are past costs, necessarily incurred before the amendment is made. On the other hand, costs occasioned by an amendment are "prospective" or "consequential" costs incurred after the amendment has been permitted: see at [30], [35]-[36].
Davies J said in Zilliotto (at [47]):
The enquiry must be directed to what costs were expended which would not have been expended had it not been for the adjournment and what prompted the need for the adjournment. I agree with Mukhtar AsJ's analysis that "costs thrown away" is looking to past costs - compensation for work already done and wasted because of the adjournment, or amendment or error. It does not refer to costs which have not yet been incurred even though they would not have been incurred but for the adjournment.
As his Honour noted at [48], in the case of an adjournment resulting in the likelihood of further costs, and accepting the distinction drawn by Mukhtar AsJ, an order for costs occasioned by the adjournment may be more appropriate than an order for costs thrown away. The distinction is supported by other authorities and by the textbook writers: see Dal Pont at [1.23] footnote 104, and Quick on Costs at [20.540].
In The Owners of Strata Plan 93543 v Zhang (No 2) [2021] NSWSC 360 Stevenson J took a somewhat different view. His Honour was asked to make a lump sum costs order against the party responsible for a late adjournment. He accepted that costs thrown usually relate to past work. In his Honour's view however this is not an absolute rule. He considered that in the case before him it was legitimate to include costs of further work occasioned by the adjournment as "costs thrown away".
It is not necessary in this judgment to go any further into the debate. Adjournments may, as Davies J suggested, give rise to separate considerations. In the present case the rationale for the order sought is the fact that costs have been wasted in dealing with pleaded allegations which have been rendered irrelevant by later amendments.
Given what is involved in fixing a sum to be paid on account (see [33] below), there seems no reason why an order for the payment of a fixed sum on account of costs could not be made by reference to future costs. But the Hall Chadwick Partners have sought to have the sum fixed by reference to past costs anyway. The application is not premature. I reject counsel's preliminary argument.
This brings me to the question of quantum. There was evidence on this issue from the solicitor responsible for the carriage of the Hall Chadwick Partners' defence, Mr Mitchell Stein. In response to Mr Stein's affidavit, there was an affidavit (largely inadmissible in form: see J3 [16]) containing some commentary from Mr Salmon himself. Mr Stein then responded to Mr Salmon's comments in a further affidavit. The comments and the reply affidavit are not relevant for present purposes.
According to Mr Stein, the Hall Chadwick Partners' costs up to the date of his affidavit (20 April last year, when the motion was filed) were $355,000. Of this, $49,000 had been incurred in connection with the motions before me and $31,000 for the costs of a strike out application before Slattery J which was unsuccessful (see J2 [27]). Deduction of these two amounts resulted in a residual figure of $275,000.
Mr Stein annexed to his affidavit a summary of defence costs, organised into six categories (reviewing and preparing pleadings, evidence preparation and so on). For each category the summary identified various activities undertaken with the number of time entries and the cost relating to each. No issues were raised about the summary in Mr Salmon's affidavit and apparently no request was made for production of the underlying invoices.
Mr Stein noted that in the versions of the plaintiffs' statements of claim filed up to 2017, the claim against the Hall Chadwick Partners had been pleaded in deceit, conspiracy, "wilful default or wilful neglect"; breach of their duties as receivers; and knowing participation in a breach of fiduciary duty by Mr Brown. In the Second Further Amended Statement of Claim the first two of those causes of action had been abandoned.
Mr Stein acknowledged that the work done on previous versions of the statement of claim included some work which remained of value in meeting the causes of action retained in the latest version. He estimated however that about two-fifths in value of the work ($110,000) would have been wasted. Counsel for the Hall Chadwick Partners in his submissions discounted this by thirty per cent to reflect a party/party recovery, and then discounted it further to $70,000 in the interests of conservatism.
As already noted, counsel for the plaintiffs submitted that the application for a lump sum payment on account was premature. Counsel did not directly address the issue of quantum or propose a figure of his own. But he did submit that all that had happened was that the plaintiffs had abandoned some of their causes of action. In counsel's submission, the factual matrix remains the same. The suggestion was that any costs thrown away would be minimal.
In my view this submission is oversimplified. For a defendant's legal representatives, the plaintiff's causes of action are critical. They define the elements of the pleaded case to be admitted or put in issue, and the selection of affirmative defences to be advanced. In the present case limitation defences were of particular potential significance given the delay in prosecuting the proceedings. All of this would have required analysis and advice to the clients.
When the case came before me, I found the Statement of Claim confusing and difficult to follow. A lot of court time was spent getting counsel to explain it. This explanation revealed difficulties with the claims propounded and also with the way in which the damages claims were formulated. Those difficulties have been addressed in the amended version of the Statement of Claim. The result has been to focus the plaintiffs' claims in a more useful way. But all of this occurred long after the case began. The Hall Chadwick Partners' legal representatives were required to respond to the claims made against their clients without the benefit of those explanations and refinements of the plaintiffs' case.
It needs to be remembered that the process with which I am engaged in is only a process of fixing an amount to be paid on account. The fixing of the figure will not finally determine the quantum of costs recoverable as having been thrown away. The process does not require some sort of preliminary assessment, and indeed it would defeat the purpose to require that. While solicitors' estimates may provide some guidance, the figure can be fixed with the broadest of brushes, informed by the Court's own prior experience.
Causes of action in deceit and conspiracy are not encountered in every case and the principles which govern them are not particularly straightforward. In the circumstances of this case I do not find it at all surprising to think that if the causes of action in question had never been propounded, the Hall Chadwick Partners' costs would have been tens of thousands of dollars less. As I have mentioned, no alternative quantification was presented. In the exercise of my judgment, which is necessarily an impressionistic one, I fix the amount to be paid at $50,000.
[4]
Costs of application
Counsel for the Hall Chadwick Partners made it clear that they were only seeking an order for their costs on the usual interlocutory basis. There was no application to have those costs (or an amount on account thereof) payable now.
Counsel for the plaintiffs submitted that the costs of the application should be dealt with at the end of the proceedings when, counsel asserted, they would be more than balanced out by orders for costs which would be made in the plaintiffs' favour. Counsel relied on what Young CJ in Eq (with whom Handley JA and Foster AJA agreed) said in West Point Finance Pty Ltd v Chocolate Factory Apartments Ltd [2002] NSWCA 287 at [66]:
Although costs are always in the discretion of the Court and each case is different, the basic guideline to costs on interlocutory applications for an injunction is that where the plaintiff succeeds costs should be costs in the cause, but an unsuccessful plaintiff should pay the costs.
For practical purposes making a costs order against the plaintiffs on the usual interlocutory basis would not impede their conduct of the case. The costs would only be payable by the plaintiffs (or be debited against any entitlement the plaintiffs might have to their general costs of the proceedings) as part of the wash-up at the end. But if counsel, in referring to the Westpoint case, was arguing that there should be no costs order at all at this stage, then I do not agree.
The "basic guideline" stated by Young CJ in Eq was, as his Honour stated, a guideline applicable to applications for interlocutory injunctions. In such a case a plaintiff may succeed in obtaining an injunction on an interlocutory basis, but fail in the ultimate claim, so that it can be seen in retrospect that there was no entitlement to the interlocutory injunction.
The present case, in my view, is different. The Hall Chadwick Partners' application was a discrete one. It was wholly opposed. The Hall Chadwick Partners, having had to come to Court, and having obtained substantial relief, should receive an order for their costs on the usual interlocutory basis.
[5]
Payment on account
As with the Hall Chadwick Partners, Mr Brown sought an order for payment of a sum of money on account of the plaintiffs' obligation to pay his costs thrown away by reason of the amendment. The application was supported by an affidavit of Mr Brown's solicitor, Mr Alexander Haslam.
For the same reasons I gave for the Hall Chadwick Partners' application, I consider that I should make such an order. The only question requiring consideration is quantum.
Mr Haslam in his affidavit identified the costs associated with defending the proceedings (excluding costs associated with the motions before me) as $294,600. Mr Haslam accepted a reduction to $205,200, on the basis that the solicitors' professional costs would be seventy per cent of the amount charged and counsel's fees would be ninety-five to one hundred per cent charged.
Mr Haslam's affidavit did not contain any summary or breakdown of the costs of the type included in Mr Stein's affidavit. As counsel for the plaintiffs pointed out, Mr Haslam did not attach copies of the invoices either; but then again, he does not appear to have been asked to do so.
Mr Haslam did not acknowledge, and nor did counsel for Mr Brown in his submission, that any of the work previously done would remain of some value. Nor did Mr Haslam identify any changes to the causes of action against Mr Brown.
The claim for over $200,000 for costs thrown away basically represents the whole of the costs incurred prior to the amendment. I think this claim is wildly over-optimistic. Having regard to the complexity and confusion in the earlier versions of the statement of claim, and the extensiveness of the amendments, I am quite prepared to accept that the costs incurred by Mr Brown would have been greater than would have been incurred had the current version of the Statement of Claim been propounded at the outset. But I cannot be confident the excess is anything like the amount claimed.
In the exercise of my judgment, I fix the amount at $20,000. This represents about one-fifteenth of the costs actually incurred. It is the most that I think that I can properly award by way of impressionistic analysis based on my general knowledge of the proceedings.
[6]
Costs of application
Despite my refusal to award anything like the amount claimed, Mr Brown has succeeded in obtaining something by way of payment on account of costs. He also succeeded in obtaining other relief with which I dealt in my September judgment. Like the Hall Chadwick Partners, he did not seek an order for payment of his costs of the application immediately. In the circumstances, I propose to award him the costs of the application on the ordinary interlocutory basis.
[7]
Orders
The orders of the Court on the Hall Chadwick Partners' motion filed 20 April 2021 are:
1. Order that the respondents (plaintiffs) pay to the applicants (first, second and fourth to eight defendants) the sum of $50,000 on account of the respondents' costs liability to them under the order of the Court made on 5 November 2021.
2. Order that the respondents pay the applicants' costs of the motion.
The orders of the Court on Mr Brown's motion filed 19 April 2021 are:
1. Order that the respondents (plaintiffs) pay to the applicant (third defendant) the sum of $20,000 on account of the respondents' liability to him under the order of the Court made on 5 November 2021.
2. Order that the respondents pay the applicant's costs of the motion.
[8]
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Decision last updated: 15 February 2022