Shalhoub v Johnson

The costs assessment process

1. Mr Webley was appointed Costs Assessor after the application filed on 10 May 2021 was reassigned to him on 16 December 2021. He noted the nature of the proceedings arising out of the Conveyancing Act and that there was extensive lay and expert evidence. He made no reference to specific claims of overlap between solicitors in the firm, but did make the following observations about the retainer of Senior Counsel: "Bearing in mind the nature of the matter and the fact that it was dealt with in the Supreme Court I have accepted that it was reasonable (and it did not involve a Junior as well) but I have adjusted their rates and preparation time claimed. Notwithstanding the Indemnity Order some costs were unreasonably incurred and of an unreasonable amount." (CB 375)
2. Costs were assessed at $478,225.89. Three certificates of determination of costs were issued as follows: 1. $371,607.45 for the principal proceedings; 2. $1211.63 relating to the defendants' costs of 28 June 2019; and 3. $4101.63 relating to the costs of the assessor.
3. The plaintiff sought a review of these determinations in June 2022. The Grounds for Review (all of which were rejected) were largely that costs which were asserted to have been unreasonably incurred were allowed and that the manner of presentation of the work done was unacceptable. The costs respondents also sought a review of the determination of the costs assessor for certain items.
4. The plaintiff put the following argument to the Review Panel: "As to consideration of the costs of Mr Johnson's and Ms Royles' defence relative to quantum, interest and costs sought by Mrs Shalhoub, the proportion is materially less than the proportion of approximately 5:1 of ordered costs to damages that of itself didn't warrant the relief sought by Mr Skalkos from the New South Wales Court of Appeal in Skalkos v T & S Recoveries Pty Ltd [2004] NSWCA 281." (CB 439)
5. The Review Panel stated that it had specifically taken proportionality issues into account: "In determining whether costs have been proportionately and reasonably incurred and are proportionate and reasonable in amount, the Panel has also considered whether those costs bear a reasonable relationship to the value and importance of the subject matter in issue. See Szlazko v Travini [2004] NSWSC 610; Moore v Moore [2004] NSWSC 587 and Skalkos v T & S Recoveries Pty Ltd [2004] NSWCA 281." (CB 509)
6. In the following paragraph, the Review Panel stated that they had had specific regard to s 172 on this issue.
7. As to the solicitors' fees and any relationship with the actual sum in dispute, this argument does not appear to have been developed before the Review Panel in terms, beyond the "5:1" ratio referred to tangentially by Mrs Shalhoub's legal representatives. The Review Panel rejected all the grounds for review put forward by Mrs Shalhoub, including, I note, the grounds briefly referring to Skalkos v T & S Recoveries Pty Ltd.
8. As to Senior Counsel, the Review Panel specifically stated (paragraph 62) that both the jurisdiction in which the proceedings were conducted and the complexity of the matter warranted the retaining of Senior Counsel and that the rates charged ($1,000 per hour and $10,000 per day of hearing) were reasonable and should be allowed under the indemnity costs order. Shaw Reynolds noted (CB 440) that these fees were moderate when compared to the fees of other Senior Counsel of similar standing and that retaining Senior Counsel without a junior was "uncommon".
9. The result was that the disbursements claimed at item 147 were allowed in full, as reasonably incurred. However, the Review Panel considered that 63 hours of preparatory work at such rates (item 146) was a charge unreasonably incurred. Some of the preparatory work could have been carried out by a junior counsel at a lower rate even if that junior was not briefed for the hearing. Accordingly the Review Panel allowed the reduced sum of 40 hours of preparatory work ($44,000) and 20 hours of preparatory work at a junior counsel's hourly rate of $3,850 inclusive of GST ($7,700) as reasonably incurred.
10. On 23 January 2023, the Review Panel assessed the defendants' costs of the principal proceedings at $410,709.54 and affirmed the costs in the other two determinations of the costs assessor. The Review Panel stated at paragraph 75: "To the extent that the Panel has conducted a general review of the assessment of costs which has resulted in an increased amount of costs, none of the grounds of review advanced by Shalhoub have been made out."
11. This had consequences for the costs of the review, as the Review Panel noted at paragraph 76 of its reasons: "Shalhoub has not improved her position at all. The Panel has increased the amount of costs determined by the costs assessor by more than 15%. In the circumstances and considering the provisions of clause 53(4)(a) of the LPULA Regulation and s 88 of the LPULA Act, Shalhoub should bear the costs of the review, including her own filing fee."
12. The Review Panel had been provided with a more detailed submission by the defendants than had been the case before the original costs assessor and as a result of further certificate was issued for costs incurred by the Review Panel in the sum of $10,125.25. Separate reasons were provided, but the reasons provided set out that the two reasons for determination should be read together.
13. As noted above, both the Costs Assessor and the Review Panel specifically refer to s 172 of the LPUL (see, for example, paragraph 49 of the Review Panel's Reasons)

The plaintiff appeals to the District Court

1. The plaintiff then appealed the Review Panel's determination by a Summons to this Court, which was amended on 14 April 2023.
2. There are three grounds of appeal; the first is a generalised "proportionality" attack on the size of the costs, principally by comparison to the sum of money in contest, while the second and third are specific challenges to the amounts for legal costs and for the retaining of Senior Counsel.
3. Appeals to this court are by way of rehearing. This means that if an error is identified, the Court must reassess the damages. The manner in which this has been approached is to seek a global figure based on some form of comparison between the amount of damages being sought by the plaintiff and the costs the defendants incurred defending it. The result is that the amended summons seeks an order that the amount of costs assessed be reduced to $338,852.84, in lieu of $410,709.54 as well as a determination of interest in the costs of the appeal.
4. This is a figure well below both the Review Panel and Costs Assessor assessments. The justification for putting a bald sum of this kind rather than a careful analysis of costs asserted to be disproportionate is a simple calculation as set out below. No allowance has been made for other relevant aspects of the claim such as the indemnity costs order.

Ground 1

1. The plaintiff submits that the Review Panel erred in that it was neither reasonable nor proportionate for the defendants to claim costs of such magnitude having regard not so much to the result (in that the defendants were successful) but rather in terms of the full amount put forward for assessment, namely $478,225.89. The plaintiff argues that section 172 considerations need to take into account such matters as the totality of the sum claimed when making reductions.
2. The plaintiff next argues that the Review Panel failed to give any or any adequate reasons as to why it permitted such a disproportionate amount of costs (in that it far exceeded the amount claimed in the proceedings) to be awarded. Section 172(2) should not permit the awarding of a sum so disproportionate to the value of the work carried out, particularly since these proceedings did not contain any unusual or special characteristics or issues of legal difficulty.
3. The plaintiff further submits that the Review Panel should have given an across-the-board discount to reduce the costs to an amount which could be said to be fairly and reasonably proportionate to the nature of the proceedings and the amount sought by way of damages and injunctive relief. The example given is that an appropriate unrecoverable legal fee would be a maximum of $340,000 being double and a half of the sum awarded.
4. The defendants respond that although the claim is put forward as being a damages claim of "only $137,000", this is not in fact an accurate description of the amount the subject of the claim, or evidence of its simplicity. First, the plaintiff's claim was increased to $227,000 and sought a factually complex injunction. Secondly, the affidavit evidence included nine affidavits as well as expert's reports; there were 12 witnesses in total.
5. Another factor of relevance was that there were slippages in the timetable by the plaintiff requiring adjournments and the like. This had the result of inflating the costs in terms of the proportion of those costs in relation to the amount sought.
6. The next relevant factor is that the plaintiff, not the defendants, chose the jurisdiction, sought the injunction all the way to trial and conducted a four-day trial after refusing an offer in circumstances which the trial judge considered warranted the award of indemnity costs.
7. I am satisfied that the Review Panel considered and invoked proportionality principles appropriately in the circumstances, taking into account all aspects of how these proceedings were conducted. The size of the sum sought was but one factor. The defendants' conduct of the case was responsible and efficient, not only in terms of their preparation for the hearing (which they did without counsel until a week before the hearing) but in terms of making sensible offers and complying with timetables. They were entitled to put their full costs to the Costs Assessor and Review Panel as a significant amount of the costs incurred were charged on an indemnity basis. There is no suggestion that costs in breach of the indemnity principle were sought. The defendants were entitled to prepare their bill on the basis of the costs agreement they had with their clients.
8. Ground 1 of the Summons fails.

Ground 2

1. Ground two of the appeal asserts that the defendants' legal representatives included a total of two partners, four solicitors and eight paralegals attending to the matter at various times, the inference being that there was a degree of overlapping and unnecessary duplication of work of the following kind: 1. Inappropriate internal conferencing. 2. Excessive number and seniority of staff. 3. Duplication and double handing.
2. I note the following: 1. The partner, Mr Shaw, appeared on the record for the whole of the proceedings. Until she left the firm, a Ms Kliese carried out the day to day work, following which Mr Shaw took over. She did 42% of the work and he did 30%. Another solicitor carried out 8% of the work. Another four solicitors performed minor duties to make up the remaining 20%. This is not an excessive number of senior staff. In circumstances where Counsel was not briefed, this is an efficient use of the partner/employed solicitor system. 2. It is irrelevant that different paralegals carried out their tasks at different times. Paralegals discuss the tasks they are to perform with the legal practitioner giving them the task to do, not with each other.
3. The Review Panel did reduce costs on the basis of excessive attendances, from $31,941.05 to $25,043.45. I am satisfied that in doing so the Panel had due regard to the concept of proportionality by its analysis of the factors relevant to the determination of this issue, as opposed to the award of a sum calculated from the amount to be awarded. Proportionality of result is not a factor is not solely correlative to the amount sought but to a range of issues, including choice of venue (where the party to pay the costs has chosen an expensive higher court), conduct of the litigation (such as delays and costs orders) and a responsible approach to settlement. All of those factors favour the defendants.
4. Ground 2 of the Summons fails.

Ground 3

1. Ground 3 relates to the circumstances in which Senior Counsel's fees were allowed, albeit with the reductions identified by the Review Panel. The costs claimed for Senior Counsel ($113,000) were submitted to be disproportionate to the matter having regard to the sum claimed and the lack of complexity of the legal issues. By comparison with Mr Leggatt SC's $10,000 a day, junior counsel for the plaintiff only charged $3,000 a day.
2. The Costs Assessor reduced Senior Counsel's preparation fees to $44,000 and daily rate to $7,000 (CB 377), which Mr Sahade submits is "analogous" to rates that might be charged by junior counsel (submissions, paragraph 36). He complains that the Review Panel at paragraph 62(b) of their Reasons (CB 556) considered the fees fair and reasonable given the complexity of the case and the jurisdiction, stating that this "missed the point of the objection". The relevant question was whether Senior Counsel was required at all. If Senior Counsel was not required, only junior counsel rates would be claimable. Although not stating as much in terms, Mr Sahade was not suggesting $7,000, but a lower sum (the precise calculations leading to the alternate sum of costs advocated for by the plaintiff were only touched upon briefly).
3. Mr Sahade submitted that while it was "reasonable" (submissions, paragraph 34) for both parties to brief counsel to appear, the nature of the matter did not warrant briefing Senior Counsel and doing so was an unreasonable expense. He referred me to a number of authorities where the unnecessary briefing of Senior Counsel had been deplored. In Stanley v Phillips (1966) 115 CLR 470 at 488 - 489 Menzies J stated: "I agree with Hudson J. and with all the members of the Full Court that the discretion of the taxing master miscarried and it became a case for Hudson J. to exercise his own discretion in the matter. Hudson J. said: "The question is whether it was necessary or proper to incur the costs for the attainment of justice. What is proper for this purpose involves a question of what is reasonable and prudent in the circumstances and if in any case there are available competent junior counsel sufficiently experienced to present the case and conduct the trial in a satisfactory manner, it is proper that such a counsel should be employed. The employment of senior counsel to lead in such circumstances amounts to a luxury or to over-caution, the expense of which cannot be justly thrown on the opposing party. In my opinion the present case was a simple one, particularly in view of the admission of liability by the defendants… The questions that did arise for determination on this issue were not complicated and did not involve any lengthy examination of evidence nor any great difficulty in presenting to the jury the facts and inferences on which the assessment of plaintiff's damages depended. I have outlined what was involved, and to suggest that this might reasonably be considered to be beyond the capacity of a member of the outer bar accustomed to conduct such cases, of whom there are many, is to pay a poor tribute to the junior bar of this State."
4. It should be noted, however, that the Court's concern was for the briefing of two Counsel, Senior as well as junior, which was not the case here (see the concluding paragraphs of McTiernan J's judgment). This was the point made by Barwick CJ in section of his Honour's judgment in Stanley v Phillips which has been called "often-quoted" (Perth Airport Pty Ltd v Qantas Airways Ltd (No 3) [2022] WASC 51 at [671]): "This Court in Kroehn v. Kroehn expressed a test for deciding whether the fees for two counsel should be allowed in a party and party taxation. The question propounded by Griffith CJ when he says: 'Would a prudent person not compelled by poverty come into Court in such a ease without two counsel?' must be understood in relation to the basic matter in issue, which is the presentation of the case to ensure a just adjudication. The question is not whether a man in seeking his own maximum advantage would be imprudent not to engage counsel of a particular level of experience or skill. The question is whether the services of more than one counsel are reasonably necessary for the adequate presentation of the case."
5. What is more, Stanley v Phillips was a motor vehicle personal injury claim where liability was admitted and the injuries of a modest nature, resulting in an award of three thousand pounds. There is no comparison with the present case where there were a number of witnesses on liability and quantum as well as expert reports on engineering issues.
6. These concerns were expressed in circumstances where the Senior Counsel in question was accompanied by a junior charging two-thirds of his fee. As the Hon Roger Gyles AO KC explains in "A Review of the Senior Counsel Protocol", Bar News, Winter 2020 at p. 9: "In earlier times, queens counsel could not appear without a junior (the two counsel rule) and the junior was to charge two-thirds of the fee of the senior (the two-thirds rule)."
7. That is no longer the case, so these earlier decisions about the briefing of two counsel need to be read in context. It was the double counsel problem, not the briefing of Senior Counsel, that was the problem. This is so to this day. There are many examples of courts questioning the need for two counsel in simple matters, even at appeal level; for example, in Price v BW & RD Smart (No 2) [2020] SASCFC 15, the Full Court of the Supreme Court of South Australia was only prepared to certify for one set of junior counsel's fees for a simple appeal on costs.
8. Courts have, from time to time, expressed views about whether the cost of briefing Senior Counsel is necessary in simple defamation proceedings. The high water mark was reached in Jones v Sutton (No 2). The plaintiff, a Councillor, brought proceedings against another Councillor where it was not in dispute that the three alleged defamations were so minor that a total award of $5,000 was accepted as being unappellable (in fact, the finding had been for the defendant at first instance as the defence of triviality succeeded, but this was set aside in favour of the $5,000 agreed alternative finding made by the trial judge). The Court refused to certify the costs of Senior Counsel as well as rejecting the plaintiff's claim for indemnity costs (or even that costs follow the event, apart from 4 of the 17 days of trial). The Court stated at [53]: "Likewise the costs of the proceedings as a whole, given the length of the trial and the engagement of senior and junior counsel, will have been disproportionate to the claim. Massively so. In our opinion, the Court should not facilitate such disproportion by making an order for costs that simply follows the event."
9. These were, however, proceedings for damages for three minor and limited slanders to a handful of persons in proceedings conducted in a court at inferior level. It was a case well within the expertise of a junior counsel, the Court noted, and it was one where there was a strong flavour of a political vendetta. That is very different to the facts of this case.
10. A further issue is that of venue. As noted in relation to Ground 2, notwithstanding the seeking of injunctive relief, it was always open to one or both of the parties to have the proceedings transferred to the District Court of New South Wales. The effect of s 149 of the Civil Procedure Act 2005 (NSW) is that in relation to any proceedings to which a transfer order relates, the lower court has, and may exercise, all of the jurisdiction of the higher court: Mohareb v State of New South Wales [2023] NSWCA 289 at [21].
11. There are, however, costs and delays involved; for example, the application may be not merely opposed but refused. It is an undesirable interlocutory step where the solicitors for the defendants would have been conscious of the undesirability of further adding to the costs by bringing interlocutory applications unless these were really necessary.
12. This brings me to a consideration of proportionality issues of the kind identified in Skalkos in terms of how the defendants utilised their chosen Senior Counsel to best effect. First, he was briefed only in the week before the trial, at a time when trial was inevitable. Second, he was briefed without a junior. Third, he ran the case with economy and skill, with the result that the hearing took only four of the five days allotted, and he has not charged for the fifth day. Fourth, not only did Mr Leggatt SC win the case, but the efficiency with which he approached and analysed the issues is clear from the decision of the judge hearing the matter and no doubt was an important factor in the speed with which that judgment was handed down. These economies of efficiency and scale need to be taken into account as well as other issues relevant to proportionality, of which the size of the sum sought is but one factor.
13. Ground 3 of the Summons fails.

Concluding remarks

1. The costs in these proceedings are high, but the sole reason for this is the conduct of the litigation by the plaintiff. It was the plaintiff who chose the Supreme Court to commence proceedings, who failed to make or accept sensible offers (resulting in an indemnity costs order) and whose delays resulted in costs orders. Both the Costs Assessor and Review Panel took the principle of proportionality and the provisions of s 172 into account and made a proper evaluation of the adjustment of the costs to reflect what is reasonable and fair in the circumstances. There is no error of law or fact in the Review Panel's determination that has been established.
2. I propose to make alternative findings as to how the costs would be assessed in the event that I have erred in this finding.
3. I first note that neither party sought a referral to an expert costs assessor for the preparation of a report reassessing the costs, from which I infer that the parties are content to leave this issue to me.
4. The only guidance the plaintiff provides is for me to accept the sum it has worked out. This is arrived at on the basis of: 1. Unspecified reductions from the solicitors' costs, such as reducing asserted excessive attendances to nil rather than $25,043.45, the sum to which such attendances had been reduced by the Review Panel (from $31,941.05; submissions, paragraph 38). 2. Reducing Senior Counsel's fees by $57,000 to a total of $38,000 being 100 hours at $385 per hour inclusive of GST (submissions, paragraph 39).
5. I would not make any alterations to the solicitors' costs. Even if I were to accept that there was some kind of disproportionality between the costs incurred and the nature of the case, I am of the view that the plaintiff has not discharged the onus of proof of establishing that there was disproportionality of the kind complained of or the degree of overlapping or unnecessary work complained of.
6. As to counsel generally, while counsel are frequently warned that they should not assume that their fees will be waved through on assessment (Laro-Bashford v Miros [2016] VSC 77 at [25]), it is quite common that no adjustment to Counsel's fees is made on assessment at all. The degree to which proportionality should result in a reduction needs to take into account that the defendants' solicitors' decision to brief Mr Leggatt SC only a week beforehand was an excellent way to keep the costs down and Mr Leggatt SC's preparation and presentation was a model of efficiency. Accordingly, were I to be in a position to reassess Mr Leggatt SC's costs, I would not have acceded to the plaintiff's submissions to reduce the Review Panel's calculation of this sum either to the amount found by the Costs Assessor or to the lower amount they now suggest.

Costs and final orders

1. After I reserved, I received an interest calculation from the defendants' solicitors but it is not up to date and the total amount is left blank. The plaintiff has not responded. I grant liberty to apply.
2. It is my understanding that the defendants propose to consider seeking a gross sum costs order pursuant to s 98(4) of the Civil Procedure Act 2005 (NSW).
3. An order for indemnity costs was made in the hearing. I understand the parties may wish to address me on a number of issues concerning indemnity costs. In the circumstances, I have reserved costs, with liberty to apply.

Orders: 1. Summons dismissed; plaintiff's grounds of appeal dismissed. 2. Costs reserved with liberty to apply, including the bringing of any application for a gross sum costs order. 3. Liberty to apply in relation to any claim for interest. 4. Exhibits retained until further order.

Amendments 15 December 2023 - typographical errors in paragraphs [23] and [72] 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: 15 December 2023