Shalhoub v Johnson

District Court of NSW|2024-02-07

The application before the court

By Notice of Motion filed on 19 December 2023 the defendants, who were successful in defending an appeal from the Review Panel, now seek further orders as follows: 1. The Plaintiff is to pay the First and Second Defendants' costs by way of a gross sum of $67,241.04 pursuant to section 98 of the Civil Procedure Act 2005 (NSW). 2. The Plaintiff is to pay the First and Second Defendants' counsel's costs of this application, in the gross sum of $1,500, pursuant to section 98 of the Civil Procedure Act. 3. The Plaintiff is to pay further interest on the costs orders made on 28 June 2019 and 29 September 2020 including: 1. from 3 May 2022 to the date of judgment in these proceedings, in the amount of $53,215.52, pursuant to section 101 of the Civil Procedure Act; and 2. interest after the date of judgment in these proceedings pursuant to section 101 of the Civil Procedure Act. 1. Such further orders as the Court sees fit.
The application is opposed by the plaintiff, who seeks an order for assessment of costs in the usual way or alternatively for referral out to a costs assessor "for the preparation of a report" (affidavit of Emanueli Oliveri, 5 February 2024, paragraph 6). The application for interest, although opposed in Mr Oliveri's affidavit, was the subject of only token challenge in the oral submissions.
These are my reasons for the orders I made this morning after hearing the submissions of the parties.

The evidence before the court

The defendants rely upon the affidavit of Alyce Kliese affirmed 19 December 2023 and their written submissions. They also tendered the Court Book from the hearing of the appeal.
The plaintiff relies upon the affidavit of Emanueli Olivera sworn on 5 February 2024.
Ms Kliese's affidavit attaches the Calderbank offers leading to the indemnity costs application in the original hearing (no offers were made concerning the appeal), a calculation of interest, a schedule of actual costs for $67,241.04 and copies of each of the bills for the period 6 March 2023 up to the date of judgment on the appeal, together with counsel's fees. At paragraph 20 of her affidavit she sets out the persons who carried out the work and their rates. A further sum is sought for the bringing of the application today.
However, neither the affidavit nor the short submissions provided two days ago set out the costs order sought (i.e. indemnity or ordinary costs), estimates of the percentage of costs to be deducted if costs were assessed on the ordinary basis (generally around 60%-85%), whether such deductions should be made from counsel's fees as well as solicitors' costs, and/or any allowance for the "rule of thumb".
Mr Oliveri's affidavit is similarly brief. He says nothing about the rates charged or any other aspect of the orders sought, beyond noting his opposition both to the gross sum costs order and the interest being sought. He attaches a response to the defendants' memoranda of costs as if these had been entries in a costs assessment and challenges more than $40,000 of the costs sought in this fashion.

The relevant statutory provisions

Section 98 of the Civil Procedure Act provides: 98 Courts powers as to costs (cf Act No 52 1970, section 76; SCR Part 52A, rules 5, 6, 7 and 8; Act No 9 1973, section 148B; Act No 11 1970, section 34) (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 - (a) costs up to, or from, a specified stage of the proceedings, or (b) a specified proportion of the assessed costs, or (c) a specified gross sum instead of assessed costs, or (d) such proportion of the assessed costs as does not exceed a specified amount. (5) The powers of the court under this section apply in relation to a married woman, whether as party, tutor, relator or otherwise, and this section has effect in addition to, and despite anything in, the Married Persons (Equality of Status) Act 1996. (6) In this section, costs include - (a) the costs of the administration of any estate or trust, and (b) in the case of an appeal to the court, the costs of the proceedings giving rise to the appeal, and (c) in the case of proceedings transferred or removed into the court, the costs of the proceedings before they were transferred or removed.

The relevant principles of law

The relevant principles have most recently be the subject of analysis by Kunc J in Aidan Llewellyn trading as the Trustee for the House of Llewellyn v State of New South Wales (No 2) [2023] NSWSC 1597 and I gratefully borrow from his Honour's summary of these at [7] ff.
The "principal purpose" of a specified gross sum costs order "is to avoid the expense, delay and aggravation likely to be involved in a contested costs assessment process": Ahern v Aon Risk Services Australia Ltd (No 2) [2022] NSWCA 39 at [15] (the Court), citing Hamod v New South Wales [2011] NSWCA 375 at [816]-[817].
Whether a specified gross sum costs order should be made is a discretionary issue. While the discretion is not confined, such order should not be made unless the Court is satisfied that it can do so fairly, on the basis that, if such an order is to be made, there is sufficient supporting documentation and a clear outline of how the sum in question is worked out. This was emphasized in Gabrielle v Abood (No 4) [2023] NSWCA 100 at [6], where the Court stressed both the discretionary nature of such orders and the need for fairness to both parties: "The power to make a gross sum costs order provided by s 98(4)(c) of the Civil Procedure Act 2005 (NSW) is discretionary. Authority establishes that the discretion is not confined and may be exercised whenever the circumstances warrant its exercise; it should only be exercised when the Court considers that it can do so fairly between the parties, and that includes having sufficient confidence in arriving at an appropriate sum on the materials available; courts have typically applied a discount in assessing costs on a gross sum basis; and the court is not required to undertake a detailed examination of the kind that would be appropriate to taxation or formal costs assessment: see Hamod v New South Wales [2011] NSWCA 375 at [813]-[820] and authority there cited."
As Kunc J goes on to note in Aidan Llewellyn trading as the Trustee for the House of Llewellyn v State of New South Wales (No 2), in Ahern, the Court stated at [42]: "In making a gross sum costs order, the Court is entitled to take into account that if assessed on the ordinary basis, the usual outcome is that the costs recovered represent a proportion in the range of 60 to 85% of the total costs incurred (Bechara v Bates [2016] NSWCA 294 at [69]). Accordingly, in assessing the gross sum costs order, the Court should apply an "impressionistic" or "broad brush" approach in applying a discount to reflect that reality: [Hamod v New South Wales [2011] NSWCA 375] at [820]; Bechara at [14].""

What costs order should be made?

Before considering a gross sum costs order, the costs order to be made should be determined.
The usual rule is that costs should be on a party-party basis. The Court has a wide and unfettered discretion to award costs on an indemnity basis, but only in appropriate cases in particular circumstances. The purpose of an order for costs is to indemnify or compensate the person in whose favour it is made, not to punish the person against whom it is made: Latoudis v Casey (1990) 170 CLR 534.
Counsel for the defendants very properly conceded that no indemnity costs order could be sought. This presents an immediate problem for the defendants, who are claiming 100% of the costs they charged their clients, without even the "rule of thumb" discount that would apply to costs awarded on an indemnity basis. The unfairness to the plaintiff, even if some agreement as to percentage reduction were put forward during oral submissions, is evident. No costs assessor would allow 100% of all costs billed to the client where a costs order on the ordinary basis was made.

The two-step process for a gross sum costs order

As Ms Kliese notes in paragraph 9 of her submissions, the making of a gross sum costs order is a two-stage process where the court must be satisfied firstly that the circumstances of the case warrant the making of a gross sum costs order (Harrison v Schipp (2002) 54 NSWLR 738 at [22]) and, secondly, that the court has sufficient information as to the quantum of the costs involved.
As to the first, as Ms Kliese notes at paragraph 11 of her submissions, the desirability of the costs of a costs appeal being determined as a gross sum rather than a further costs assessment is well recognised where there has been a history of disputes and appeals: Lambert v Jackson [2011] FamCA 275 at [59]; Bobb v Wombat Securities Pty Ltd (No 2) [2013] NSWSC 863 at [8]. The history of these proceedings fall within these parameters, as is commonly the case where costs appeals come before the court for hearing.
The real difficulty lies in the second stage of the process, namely that the court must be satisfied that there is sufficient information before the court to enable determination of the costs. As I noted in Ferella v Stomo (No 2) [2017] NSWDC 61 at [34], this is generally done by the solicitor with conduct of the matter, with not only full disclosure of rates and the nature of work but also appropriate concessions as to the percentage for reduction for ordered costs (including whether that reduction applied across the board or only to solicitors' costs); see Ahern at [42].
In addition, the sum sought for the amount of work involved is towards the top of the range. Concerns of this kind have resulted in refusals to make gross sum orders in other courts; I note that this was sufficient for Fullerton J to refuse to make a gross sum costs order in Ghosh v Miller (No 2) [2016] NSWSC 713. All I have is the bills sent to the clients and I do not consider this is sufficient information to determine how these costs are justifiable for a relatively simple appeal, particularly given the objections raised to these amounts in the affidavit of Mr Oliveri, which complain of duplication of work, multiple consultations and the like. Mr Oliveri is prepared to concede only $23,352, so a considerable amount of the work is challenged.
This is not an uncommon problem with gross sum costs order applications. Similar difficulties arose in In the matter of Fogo Brazilia Holdings Pty Ltd (in liq) [2022] NSWSC 1070, where Williams J noted that not only was the information insufficient (in that, as is the case here, there was no clear request for a realistic sum), but a similar issue arose as to indemnity costs. Williams J considered he did not have sufficient information to be able to make a gross sum costs order.
Taking all of the above into account, I do not have sufficient information to determine the costs of the appeal on a gross sum basis. As Williams J noted in In the matter of Fogo Brazilia Holdings Pty Ltd (in liq) at [18], I accept that this means that the costs process will be more drawn out but, for the same reasons as those set out by Williams J, consider this the best way forward. Both parties will benefit from a costs assessment. The defendants will have the opportunity to put their bill in proper form, and I suspect that the sum sought will be well below what was sought here. The parties may even be able to agree upon the sums involved.
The costs assessment process is an efficient and accurate way of determining costs between parties and remains the most frequented path to the determination of costs. Gross sum costs orders are an adjunct to this system, not a replacement.
My observations should not be construed as a criticism of any of the legal practitioners involved. All of them, and in particular the defendants' representatives, have conducted these proceedings with efficiency and ability. The approach taken to gross sum costs orders by the parties in this case is, however, not the best way to achieve a fair result for both parties, and the traditional path of costs assessment is their best way forward.

Interest

The defendants seek further interest on the costs orders made on 28 June 2019 and 29 September 2020. They advise that the interest component of the costs being reviewed by me have not been paid, in which case s 101(5) of the Civil Procedure Act applies. The plaintiff submits that the delay since these costs orders were made have not been occasioned by any act or omission by the plaintiff, who has complied with the court timetables.
The plaintiff's appeal from the Costs Assessor was, as the Review Panel pointed out, completely unsuccessful, and resulted in the plaintiff losing on every issue. The plaintiff's appeal to this Court was unmeritorious. I am satisfied that the defendants should be awarded the additional interest they seek as the costs order sums have been fructifying in the plaintiff's pocket for a considerable period.
Although there appears to be no challenge to the computation of interest, rather than award a set figure, I grant liberty to the parties to bring in Short Minutes of Order reflecting the mathematically agreed calculations for additional interest.

Costs

The parties have had mixed success. The plaintiff has successfully opposed the making of a gross sum costs order but the defendants have been successful in relation to their interest claim. Both counsel accepted that the appropriate order to make was that each party should pay their own costs of this application.

Orders: 1. By way of variation of order 2 of the orders of 13 December 2023, the plaintiff is to pay the defendants' costs of these proceedings on the ordinary basis. 2. The defendants' applications for a gross sum costs order pursuant to s 98(4) of the Civil Procedure Act 2005 (NSW) is refused. 3. The defendants' application for further interest on the costs orders made on 28 June 2019 and 29 September 2020 is granted and the parties are to bring in Short Minutes of Order reflecting the mathematically agreed amounts for the periods identified in prayer 3 of the Notice of Motion up to the date of this judgment. 4. Each party is to pay their own costs of the Notice of Motion. 5. Notice of Motion otherwise dismissed.

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: 08 February 2024

At a glance

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Judgment (11 paragraphs)

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Legislation Cited (2)

Cases Cited (15)