Applicant (Paying Party) : Mr D J Garnsworthy & Mr S Forbes

Degmam Pty Ltd (in liq) v Wright (No 2) [1983] 2 NSWLR 354

In re Robb and Rees, unreported FCt SCt of ACT (Miles CJ Gallop & Higgins JJ); 7 June 1996

Irving v Gagliardi; exparte Gagliardi (No 2) (1895) 6 QLJ 200

Lenthall v Hilson [1933] SASR 31

TNT Bulkships v Hopkins [1989] NTSC 42; [1989] 65 NTR 1

1 PARKER J: This matter comes before me by way of a review of a taxation of costs.

2 The original action involved a dispute over beneficial and proprietal rights to land. I need not traverse the issues or the progress of the litigation. In the end the first defendants suffered the striking out of their counterclaim, which was their effective defence to the claim of the plaintiff, so that the plaintiff succeeded.

3 On 19 December 1996 Master Sanderson ordered that the solicitors for the first defendants, Messrs Paiker and Overmeire, pay on an indemnity basis certain of the costs of the action. That order was the subject of appeal to the Full Court (Ipp, Steytler and Parker JJ). The effect of its decision delivered on 9 October 1997 was to vary in some respects the order of Master Sanderson. In the result, Messrs Paiker and Overmeire were ordered to pay the costs of the plaintiff in the original action between 15 August 1995 and 29 March 1996 on an indemnity basis, together with any costs thrown away occasioned by the failure to advise the plaintiff of their clients' bankruptcies by 15 August 1995, such costs to be taxed.

4 It was, of course, unusual that an order be made against the solicitors for a party to pay the costs of another party to the action and for those costs to be ordered on an indemnity basis. The orders were made on the basis that there had been an abuse of process, in that Messrs Paiker and Overmeire had known by 15 August 1995 that sequestration orders had been made against the estates of their clients, the first defendants, by virtue of which the action was stayed pending election by the trustee; Bankruptcy Act 1966 (Cth) s 60(2). Messrs Paiker and Overmeire failed to notify their opposing solicitors in the action and continued to participate in the processes of readying the action for trial. These included an actual entry for trial and a directions hearing in which the callover Judge was advised by a solicitor from the firm that the action was ready for trial. It was only at a mediation conference on 29 March 1996 that advice was given of the bankruptcies. The dates identified in the order of the Full Court related to the period during which Messrs Paiker and Overmeire failed to inform the solicitors for the plaintiff.

5 The power to make these orders may be identified as conferred by s 37 of the Supreme Court Act 1935 but, quite apart from that provision, the power is inherent in the Court being in the exercise of the Court's authority over the conduct of its own officers for a breach of duty to the Court; see in particular Meyers v Elman [1949] AC 282 at 289 per Viscount Maugham, 303 per Lord Atkin, 307 per Lord Russell of Killowen, 319 per Lord Wright and 336 per Lord Porter, and Michael v Freehill Hollingdale and Page (1990) 3 WAR 223. In the exercise of this power the Court is not acting inter partes but is exercising its disciplinary authority over the conduct of its own officers. The jurisdiction, however, is not merely punitive, it is also compensatory; Meyers v Elman at 319. As in England, see Meyers v Elman at 334, it is concurrent with the jurisdiction conferred by Part IV of the Legal Practitioners Act 1893 (WA) and is preserved by s 31H of that Act.

6 In this case the order was for the costs of the action between the stipulated dates to be taxed on an indemnity basis. That has been long established to be a basis for taxation different from ordinary party and party costs, even though party and party costs are also correctly viewed as providing at least a limited indemnity to the other party to litigation. A number of relevant authorities were considered by Nicholson J in Ballato and Ors v Cooperative Bulk Handling Limited, unreported; SCt of WA (Nicholson J); Library No 8036; 30 January 1990. In particular, drawing on the decision in EMI Records Ltd v Ian Cameron Wallace [1983] 1 Ch 59 his Honour was persuaded (at 6) that the ordinary and accepted meaning of an order for costs to be taxed on an indemnity basis is that "all costs shall be allowed except insofar as they are of an unreasonable amount or have been unreasonably incurred". In my respectful view that is a conclusion well supported by authorities in England and in this country. Those authorities, however, have been decided in legal situations which are to be distinguished from that which now prevails in this State. As was observed by Ipp J in Unioil International Pty Ltd and Ors v Deloitte Touche Tohmatsu (A Firm) and Ors, unreported; SCt of WA (Ipp J); Library No 970491; 25 September 1997 at 3-4:

"Indemnity costs, as Megarry VC observed in EMI Records Ltd v Ian Cameron Wallace Ltd [1983] Ch 59 at 65, have often been "more or less equated with orders for costs as between solicitor and own client". In this State, as Malcolm CJ (with whom Nicholson and Wallwork JJ agreed) said in Anfrank Nominees Pty Ltd v Connell (1991) 6 WAR 271 at 284:

'... by O 66 r 11(2), the position is that unless there is an agreement in writing between a solicitor and his client pursuant to s 59 of the Legal Practitioners Act the fees allowed under the scale in the Fourth Schedule apply both as between party and party and solicitor and client.'

As I observed in Collins v Westralian Sands Ltd (1993) 9 WAR 56 at 64:

'There may be items which, by their nature, are not 'matters referred to in that scale'. An example of this kind might possibly be counsel's opinion on the merits of a particular cause of action. Save for items of this kind, and where no costs agreement under s 59 of the Legal Practitioners Act has been entered into, in this State there should be no difference between the items and amounts allowed under a party and party bill of costs and those under a solicitor and client bill of costs.'

Accordingly, in the light of the costs regime in force in this State, an order for indemnity costs has less significance than in those jurisdictions where the amounts allowed for party and party costs are materially lower than those allowed for solicitor and client costs."

7 I would add only two further observations. Section 58ZB(1)(a) of the Legal Practitioners Act 1893 reinforces the operation of O 66 r 11(2) of the Rules of the Supreme Court. Secondly, the comments in those cases were made in the context of an order for indemnity costs as between party and party, not an order for indemnity costs in the exercise of the disciplinary jurisdiction of the Court as in the present case. I will not fully explore the significance of that second observation as it is unnecessary to do so to determine this present review, but there may well be some scope for distinction between an order for indemnity costs under the inherent disciplinary jurisdiction of the Court and an order for indemnity costs as between party and party having regard in particular to the terms of s 58ZB(1) and (3) of the Legal Practitioners Act 1893. In the present case, however, there was no "determination" of the amount of costs to be paid by Messrs Paiker and Overmeire within the meaning of s 58ZB(3) by the Full Court. The order was for the costs to be taxed on an indemnity basis.

8 An order for costs to be taxed on an indemnity basis, whether under the inherent disciplinary jurisdiction or in respect of party and party costs, is in my view necessarily an order that the paying party should indemnify the other party to the extent of that other party's legal liability to pay costs. Should that party, in fact, have no legal liability to pay costs to the solicitor who acted on the party's behalf or, if there is for example some statutory limitation on the amount of the liability of that party for costs to its solicitor, this is material to the extent of the indemnity contemplated by the order. If there is no legal liability at all, there is nothing to indemnify. If there is a statutory limit to the liability, that is the extent of the indemnity. It is sufficient to refer to the decision of Poole ACJ in Backhouse v Judd [1925] SASR 395 at 396-398, which decision was affirmed by the Full Court, its decision being reported in the same report at 400 - 404. See also the decision in Brown v Julius, ex parte Julius (No 2) (1959) QWN 37 which relied upon the decision in Gundry v Sainsbury [1910] 1 KB 645. Hence, in my view, if a party has not incurred costs, in the normal sense of incurred a binding legal liability to pay costs, there would be nothing to indemnify. Gratuitous payments could not sensibly be made the subject of an obligation to indemnify in this context.

9 In the present case it is common ground that there was no written agreement as to costs between the plaintiff and the plaintiff's solicitors within the meaning of s 59 of the Legal Practitioners Act 1893. In the absence of such an agreement, the practitioners had no lawful entitlement to recover from the plaintiff any sum greater than a proper allowance for practitioner and client costs pursuant to the Supreme Court Costs Scale 1991; see s 58ZB(1)(a) of the Legal Practitioners Act 1893 and O 66 r 11(2) of the Rules of the Supreme Court. Such an allowance is the extent of the legal liability of the plaintiff to his solicitors in respect of their costs of conducting these litigious proceedings in this Court. I would add that Supreme Court Costs Scale 1991 ("the Scale") is the scale which was applicable at the time the relevant services were performed by the plaintiff's solicitors and that scale was a determination of the Legal Costs Committee within the meaning of s 58W(1) of the Legal Practitioners Act 1893.

10 In the present case the plaintiff's solicitors rendered an account for its professional fees and disbursements to the plaintiff which was paid in full. The account was in the nature of a lump sum bill. It was not detailed and did not purport to be drawn pursuant to the Scale.

11 The plaintiff's solicitors bought in a bill for taxation pursuant to the indemnity order of the Full Court. This was not drawn in accordance with the Scale. It had been prepared on what is commonly called a time-cost basis. The bill sets out quite clearly and extensively the work which had been undertaken and the charge in respect of each item is identified, but these items and the charges are not directly related to the items and allowances in the Scale. Messrs Paiker and Overmeire, as the paying party, objected to the learned Taxing Officer that the bill was not drawn in a manner which enabled taxation in accordance with the Scale so that it was not possible to determine the amount at which the costs should be allowed pursuant to the Scale. Hence, it was submitted, it was not possible to determine the extent of the legal liability of the plaintiff to pay costs to his solicitors.

12 This submission was rejected by the learned Taxing Officer. In a very carefully reasoned decision, he did so essentially on the basis that the Court had a capacity to order indemnity costs, at least in its inherent disciplinary jurisdiction, which was unrestricted by s 58ZB(1) of the Legal Practitioners Act and that this power had been exercised in the present case. Further, the learned Taxing Officer ruled that even though it was true in this case it was "irrelevant that, as a matter of law, since there was no costs agreement, the receiving party was not obliged to pay his solicitors any more than scale costs".

13 Insofar as the learned Taxing Officer may have relied on s 58ZB(3) I would observe that there was, in this case, no attempt by the Court to "determine ... the amount of costs allowed", instead they were ordered to be taxed. As mentioned earlier there may be some scope for the Court to determine costs within the meaning of s 58ZB(3), and for this purpose the Court might first seek a report from a Taxing Officer before determining the amount of costs to be allowed (see RSC O 66 r 5(3)). That was not done in the present case. As costs were ordered to be taxed, it would seem to me to be inevitable as a matter of law that the existence of statutory restrictions on the liability of the plaintiff to pay costs to his solicitors was both relevant to the taxation and set the limit of the indemnity to which Messrs Paiker and Overmeire were bound by the order of the Full Court. In my respectful view it was the case, therefore, that the learned Taxing Officer did err in these respects. He did so in a matter of principle as that term is understood in the authorities.

14 It would add that even though statutory provisions, together with O 66 r 11(2) and the reasoning canvassed in the Unioil decision cited earlier, have modified and moderated its application, it remains the underlying principle for the taxation of costs on an indemnity basis that "all costs shall be allowed except insofar as they are of an unreasonable amount or have been unreasonably incurred". In this jurisdiction, however, at least in the absence of a written agreement as to costs, a consequence may well be that, generally speaking, costs in excess of a proper scale allowance may well be unreasonably incurred or of an unreasonable amount within the meaning of that principle. I say "generally speaking" because, as was observed in Collins v Westralian Sands Ltd at 64, there may be costs properly allowed which are outside the scale. Further, as a practical matter, on the taxation of a bill where costs are to be paid on an indemnity basis, the observations of Megarry VC in EMI Records Ltd v Ian Wallace Ltd at 64-65 as to the approach of the Taxing Officer to borderline items may also be of continuing assistance. I am not intending by that observation to suggest that all that was said in EMI Records Ltd v Ian Wallace Ltd (supra) particularly at 64 - 65 by Megarry VC may be translated to a taxation of costs in this jurisdiction where there is an indemnity order. What has been canvassed earlier in these reasons precludes that.

15 In this present case, however, the error in principle by the learned Taxing Officer which has been identified does not necessarily lead to the result that the allocatur must be varied on this review. The learned Taxing Officer expressly rejected a submission for Messrs Paiker and Overmeire that the form of the bill made it impossible to relate items in the bill to the scale and therefore to determine whether the amounts claimed were unreasonable. The learned Taxing Officer observed:

"The items in the bill are described in straightforward terms that identify tasks and the charges for the completion. Mr Forbes for the paying party complained that it was impossible to relate these items to the scale, to provide a measure of reasonableness. I do not think that it is correct."

"It is possible to make a broad brush estimate, from the Court file and the bill itself, of what would have been chargeable on the statutory scale for the work done in the period covered by the costs order. It is clear that a substantial part of the work in getting up for trial was done in this period. There was a significant valuation question in this action, and it is clear that expert reports required a deal of attention in various ways. A practice direction required a written advice on evidence before entry for trial, and this was prepared. The action was entered for trial. That involved preparation of the papers for the Judge, as well as attention to all the matters to be certified by the practitioner signing the certificate of readiness. There was a mediation conference. There was an attendance on a callover.

On a taxation on scale, I can assume that allowances might have been made for a substantial part of getting up, for the mediation conference, for the callover, and perhaps for one or two smaller items such as extracting orders. There is a significant probability that these would total more than the $3,180 claimed on this bill for profit costs."

16 While his approach may not have been as precise as is usual, it sufficiently appears from the passages I have quoted that the learned Taxing Officer was, in the end, able to satisfy himself from his general assessment of the work done that the profit costs which were paid by the client were less than the probable allowance in respect of those costs on a taxation pursuant to the statutory scale.

17 It seems to me, therefore, that the learned Taxing Officer has been able to satisfy himself sufficiently that the total amount claimed did not exceed that which would be allowed as between the plaintiff and his solicitors on a practitioner and client taxation pursuant to the Scale. That total amount is the limit with respect to profit costs of the indemnity which Messrs Paiker and Overmeire were obliged by the order to meet. He was thus satisfied that the amount actually paid by the plaintiff and claimed in the bill for profit costs did not exceed the limit of the plaintiff's legal obligation to pay his solicitor profit costs. I am not persuaded, therefore, that there is shown to be any rectification required to the taxation with respect to profit costs (O 66 r 55(2)).

18 I should not be taken, by these observations, to hold that it is correct that when costs to be taxed on an indemnity basis the bill should not be drawn to reflect the applicable scale. It may be, in a particular case, as it was here, that a taxing officer is able to make an adequate appreciation of the total that would be allowed on a taxation pursuant to the applicable scale so as to determine whether the costs sought exceeded the legal liability of the paying party pursuant to the indemnity order. But that may not always, or even often, be the case. If the bill is drawn to reflect the applicable scale the process of taxation is facilitated, and the party in whose favour the costs are payable can be more confident that the taxation will fully reflect that party's entitlement pursuant to the indemnity order. If the bill is not drawn to reflect the applicable scale a taxing officer may well need to require that the bill be re-drawn or else be forced to disallow some items in part or whole.

19 These observations might require some caveat on or modification of par 66.42.2 in the commentary at p 12,711 of Civil Procedure in Western Australia. That paragraph presently relies on some of the observations of Nicholson J in Ballato v Cooperative Bulk Handling Ltd (supra). In that case the bill considered related to both litigious and non-litigious work, but the scale in question applied only to the litigious work. Further, the observations in question in that decision must now be read and understood in light of the subsequent decisions of this Court to which reference has been made in these reasons.

20 The remaining matters raised on this review relate to disbursements.

21 Fees paid by the plaintiff in respect of a valuer's valuation and report have become a matter of contention because it was the order that Messrs Paiker and Overmeire pay the respondent's costs of the action between 15 August 1995 and 29 March 1996. The core issue is whether the fees for the valuation and report are properly referable to that period.

22 There is no doubt it was proper to secure a valuer's report for the pending trial and there is no dispute that the total amount charged is proper. The allowance claimed and allowed totalled $2,814. This comprised three distinct accounts as further work was required after the initial valuation and report. All accounts were received and paid by the plaintiff's solicitors between 15 August 1995 and 29 March 1996. The first and main account, however, was dated 17 August 1995 and was received with the valuation and report on that day by the plaintiff's solicitors. This main account was for $2,090 which included some $275 for disbursements by the valuer for items such as maps, search fees, etc.

23 It was common ground that the valuer had been retained and performed much of the work involved in making the valuation before 15 August 1996. It is the submission for Messrs Paiker and Overmeire that the plaintiff should have obtained an account which separated out the work performed by the valuer before 15 August and the charges in respect of that work, and that these charges should not have been allowed on the taxation.

24 In my view this submission should not be upheld. The valuer was retained to provide a valuation and report. As a matter of contract his retainer was a whole contract, ie his entitlement to remuneration arose only if and when he completed what he had contracted to do. This the valuer did on 17 August 1996. Then, and only then, did a liability arise in the plaintiff to pay the valuer's proper professional fees. In my respectful view, the learned Taxing Officer correctly held, on this basis, that the $2,090 was a cost in the action which arose or was incurred between 15 August 1995 and 29 March 1996.

25 Messrs Paiker and Overmeire submit that as the Land Valuer's Licensing (Remuneration) Notice 1992 (Government Gazette 25 September 1992 at 4747) which regulated the remuneration of licensed valuer's stipulated inter alia charges which were related to actual functions performed by a valuer, the obligation of the plaintiff to pay arose as and when those functions were actually performed. This overlooks the nature of a whole contract which determines when there is an entitlement to be remunerated and thereby when the liability to pay arises. The notice merely regulates how the valuer's remuneration is to be calculated when and if the valuer became entitled to charge. (Of course, had the plaintiff terminated the retainer before it was completed, there may have arisen an entitlement in the valuer to damages calculated on a quantum meruit, but that did not in fact occur). The decisions in Drew v Joslyne (1888) 4 TLR 717 and Faraday v Tamworth Union (1916) 86 LJCH 436 are not contrary to these views.

26 It could be thought to be more in keeping with common sense and the "spirit" of the costs order to have regard to the date when the valuer was retained rather than when liability to pay his fees arose. When the question of the liability to pay the valuer's fees is analysed correctly, however, it seems to me that the only legally correct conclusion is that which is indicated above. Undoubtedly, it has a somewhat arbitrary result but this is due to the fact that the order determines the period in respect of which costs are to be paid, rather than being directed to all the costs of the action. Further, significant practical difficulties may be foreseen in many possible factual situations if the alternative approach were to be followed. It is also to be remembered that were the valuer retained toward the end of the period covered by the order and his account received outside that period this could well have worked to the paying party's advantage. It may be that there is no ideal solution. That which turns on the legal liability to pay the valuer's fees appears to me to be the most appropriate and satisfactory.

27 I am not persuaded that the learned Taxing Officer erred in principle with respect to his allowance for the valuer.

28 It is also objected that the learned Taxing Officer erred in principle in allowing as disbursements amount for:

Such items are not in accordance with the Scale. In any event it is submitted that they are overheads and not disbursements.

29 Strictly disbursements are strictly money paid on behalf of a client of a practitioner; Browne v Barber [1913] 2 KB 553 at 573. In the context of legal costs they are used to describe those payments on behalf of a client which can properly be included in the bill of costs; Joel v Barnato (1929) 45 TLR 167. The first of these propositions indicates that only the amount of a liability which a practitioner has incurred to a third party may properly come within the description of disbursements, with the consequence that services supplied by the practitioner to the client such as attendances of the practitioner's clerk, photocopying in the solicitor's office and the like are not properly disbursements. Hence disbursements must be vouched and payment proved, see Re Osborn and Osborn [1913] 3 KB 862. In some respects this position may be modified by express provision of a rule of court, scale of costs or statute. There are, for example, express provisions relating to the cost of photocopying applicable to litigious business in this Court. These provisions are different today from those which applied at the time that the work was undertaken in this present case. The second of those propositions is also relevant. Not all items which may be considered to represent a liability incurred to a third party on behalf of a client are recoverable as disbursements for the purposes of the Scale which was applicable to the work undertaken in this case. Costs for routine postage, courier services, facsimile transmissions and the like had been taken into consideration when setting the professional charges which the Scale provided for profit costs; see Clay & Anor v Karlson & Anor, unreported; SCt of WA (Heenan J); Library No 970424; 21 August 1997 at 9. While in some jurisdictions it might be appropriate to contend that such expenses were not properly overheads as they were incurred in respect of the particular work undertaken for the client in question rather than being among the general costs of maintaining the practice whether or not professional work was done, for the purposes of the Scale they are regarded as running expenses or overheads of the practitioner's practice and not separately chargeable as disbursements; see also Re Gallard; ex parte Gallard [1896] 1 QB 68.

30 In the present case the learned Taxing Officer allowed these items in full as disbursements. He did so on the basis discussed earlier in these reasons with respect to profit costs. He held that:

"... It is beside the point that some at least of these items were not disbursements strictly so called. They were billed that way to the receiving party, he paid, and they are not unreasonable. That may not be strictly in accordance with most statutory scales, and on a taxation on another basis they might not be allowed, but again it needs to be stressed that this was a taxation on an indemnity basis."

31 In my respectful view, the learned Taxing Officer fell into error in a matter of principle in this respect. He was dealing with disbursements. Unless there was a legal obligation in the plaintiff to pay those items there could be no liability to indemnify the plaintiff pursuant to the costs order. In any event, I would question that, in the absence of a written agreement as to costs dealing with such items, it may properly be concluded that charges of this type were not unreasonable.

32 For the reasons given, there was no liability of the plaintiff to his solicitors to meet these expenses as disbursements, or otherwise. Even though the amount is small, error of principle is demonstrated. I would therefore vary the allocatur by reducing the total sum allowed on the taxation by $82.35 that being the total of the disbursements allowed by the learned Taxing Officer for items 36-40 in the bill.