This is an application for a gross sum costs order in respect of the costs of the proceedings after 1 June 2018.
The proceedings involved a claim by the plaintiff to recover the amount of $36,375.85 (including interest) under a written credit agreement entered into with the first defendant on about 10 June 2016. The plaintiff sought to recover this sum from the first defendant (who was the borrower under the agreement) as well as from the second and third defendants, who guaranteed the first defendant's obligations in accordance with the terms of a written guarantee agreement entered into on about the same day. The second and third defendants are directors and shareholders of the first defendant.
Pursuant to cl 9 of the guarantee, the second and third defendants granted a charge over all their real property to the plaintiff in order to secure their obligations under the guarantee. This charge included land situated at Kellyville in respect of which the second and third defendants are the registered proprietors.
In October 2017 the plaintiff lodged a caveat over the Kellyville property pursuant to the charging clause in the guarantee and indemnity. In March 2018 the second and third defendants served a lapsing notice in respect of the caveat.
The plaintiff commenced the proceedings by way of Summons filed on 13 April 2018 seeking urgent interim relief to extend the operation of the caveat. The Summons also sought final relief seeking monetary judgments as outlined above as well as a declaration as to the existence of an equitable charge with respect to the Kellyville property. The Court subsequently made orders on two separate occasions extending the operation of the caveat for short periods. On 18 May 2018 the substantive application to extend the operation of the caveat was listed for hearing on 1 June 2018.
On 1 June 2018 the Court made orders by consent extending the operation of the caveat until further order or lodgement of a withdrawal of caveat form. Those orders relevantly provided:
3. The First Defendant, the Second Defendant and the Third Defendant pay the Plaintiff's costs of and incidental to the Lapsing Notice and of and incidental to the proceeding in an amount to be agreed or assessed and payable forthwith.
AND THE COURT NOTES THE AGREEMENT OF THE PARTIES:
1. That the First Defendant, the Second Defendant and the Third Defendant (together - Defendants) admit that they are liable to pay and are (jointly and severally) to pay to the Plaintiff by 29 June 2018:
$29,665.60 (Principal Sum);
interest on the sum of $29,665.60 at the rate of 11.32% per annum from 17 January 2017 to the date that payment is made (Interest Sum); and
if agreed as to sum, the sum of the plaintiff's costs of and incidental to the lapsing notice and of and incidental to the proceedings (Costs Sum).
2. In the event that the Defendants fail to pay the Principal Sum and Interest Sum and (if agreed) the Costs Sum to the plaintiff by 5 July 2018, the plaintiff may apply for judgment against the Defendants in respect of any of the sums, or any part of the sums payable pursuant to notation 1, which remain unpaid as at that date.
3. If the Defendants pay the Principal Sum, the Interest Sum and the Costs Sum (if agreed) to the plaintiff on or before 5 July 2018, the parties will promptly thereafter procure the dismissal of the proceedings by consent.
4. Upon the payment of the Principal Sum, the Interest Sum and the Costs Sum (or, if the Costs Sum is not agreed between the parties, the plaintiff's costs as assessed) the Plaintiff is to provide a Withdrawal Caveat in registrable form to the Defendants. The Defendants acknowledge and agree that caveat number AM804203 shall be maintained until payment by the Defendants of the Principal Sum, the Interest Sum and the costs referred to in Order 2 (together with any further costs of and incidental to the proceeding).
The proceedings were then stood over to 6 July 2018. On that occasion, and on seven subsequent occasions, the proceedings were adjourned, presumably to allow time for the defendants to pay the agreed sums and for the parties to reach an agreement on the costs of the proceedings. On each of those occasions, the Court made orders by consent that the defendants pay the plaintiff's costs of and incidental to the adjournment. Most of the adjournments were effected by orders made in chambers prior to the appointed directions hearing. Only on 6 July 2018 and 14 June 2019 were directions hearings held in open Court. (Another directions hearing was held on 16 August 2019, when directions were made in respect of the present application).
It seems that by late October 2018 no agreement had been reached with respect to the costs of the proceedings. On 1 November 2018, the plaintiff filed an application for the assessment of the costs of the proceedings. The assessment was completed on 22 April 2019 and a Certificate of Determination of Costs was issued on 27 May 2019 stating the amount of $25,905.81 (inclusive of interest on costs up to 22 April 2019) was due to be paid by the defendants to the plaintiff.
The certificate of determination accounted only for the costs of the proceedings from their commencement on 13 April 2018 until the consent orders made by the Court on 1 June 2018. The costs of the proceedings after 1 June 2018 were not the subject of the costs determination.
Following the costs determination, three payments were made by the defendants into the plaintiff's solicitor's trust account. Firstly, on 25 June 2019 a payment of $27,105.81 was made which included the $25,905.81 sum that was determined to be payable pursuant to the costs determination. It also included an additional $1,200 which the defendant claims is appropriate to cover the legal costs incurred in the period after 1 June 2018 in relation to the multiple adjournments of the matter. Secondly, on 28 June 2019 a payment of $34,532.61 was made, said to be in satisfaction of the Principal Sum and the Interest Sum the subject of the Court's orders of 1 June 2018. Thirdly, on 13 August 2019 a payment of $324.35 was made on account of interest accrued on the costs (calculated in respect of the period from 23 April 2019 to 26 June 2019).
The plaintiff's solicitor refused to accept the defendants' tenders of 25 June and 13 August 2019. An email dated 31 July 2019 from the plaintiff's solicitor indicates that the plaintiff took issue with the cost assessor's exclusion of certain items from the assessment process. The email does not disclose particular reasons for opposition to the tender of $1,200 for the costs incurred after 1 June 2018 (which are not the subject of the costs determination), but it can be readily inferred that the plaintiff considered $1,200 to be an inadequate amount.
The result of the foregoing is that there is an impasse in respect of the costs of the proceedings accrued after 1 June 2018. The defendants claim that the $1,200 is sufficient to cover the costs accrued after 1 June 2018.
The plaintiff has adduced evidence of the actual costs it incurred during this period. The total amount is $11,048.18. The plaintiff has provided invoices of the costs on a solicitor / client basis. The plaintiff's solicitor has deposed to the hourly rate charged by the two solicitors who had carriage of the matter, being $550 per hour for the plaintiff's solicitor himself, and $440 per hour for the work of a less experienced lawyer. A time sheet and a breakdown of costs per hour are also provided. The costs associated with the multiple adjournments can be summarised as follows:
6 July 2018: $1,544.99
12 September 2018: $820.82
14 November 2018: $421.65
14 February 2018: $339.15
27 March 2019: $839.15
18 April 2019: $421.65
29 May 2019: $421.65
14 June 2019: $1,494.15
16 August 2019: $4,744.97
The higher costs associated with the adjournments of 6 July 2018, 14 June and 16 August 2019 are partly explained by the fact that the plaintiff's solicitor instructed counsel for court appearance on those occasions.
The costs associated with the 16 August 2019 directions hearing are much higher than the other adjourned directions hearings. This is sought to be explained by evidence that the defendants foreshadowed the making of an application to bring the proceedings to an end. It appears that the costs incurred take into account preparations by the plaintiff made in respect of such application.
Whilst the application for a gross sum costs order was formally brought by the defendants, all parties contend that it would be appropriate for the Court to make a gross sum costs order in respect of the post-1 June 2018 costs pursuant to s 98(4)(c) of the Civil Procedure Act 2005 (NSW).
In his written submissions, the defendants' solicitor referred to the Court's power to make an order under s 98(4)(c) and submitted that the purpose of such an order is to avoid the expense, delay and aggravation involved in the costs assessment process, and that the evidence in the present case demonstrated that requiring the parties to undertake another costs assessment process would not produce an outcome in an orderly, cost efficient manner.
In relation to the Court's approach to the assessment of the quantum of such costs, the defendant submitted that the assessment of the quantum must be based on the evidence before the Court having regard to the relevant circumstances. It was submitted that the Court need not take a meticulous approach to the assessment of the costs but rather a broad brush approach is suitable and in accordance with the objectives stated in the Civil Procedure Act. The defendants submitted that the costs accrued by the parties predominantly related to the multiple adjournments from 1 June 2018 until 16 August 2019. The defendants submitted that it had not contributed to the costs of the adjournments from early November 2018 until April 2019, during which period the costs assessment process was undertaken. The defendants also noted that the vast majority of these adjournments were effected by filing consent orders that were dealt with in chambers. It was submitted that in these circumstances the tender of the $1,200 payment was appropriate. Neither the plaintiff nor the defendants adduced any expert evidence as to the costs that might be recoverable on an assessment conducted on a party/party basis.
In his written submissions, the plaintiff's solicitor contended that the $1,200 payment was inadequate in the circumstances. The plaintiff submitted that the enquiry as to the quantum of the costs order must take into account all relevant circumstances since 1 June 2018. It was submitted that the conduct of the defendants by failing or refusing to make the payments the subject of the 1 June 2018 orders has caused significant further costs to be incurred. It was submitted that the plaintiff has otherwise acted reasonably and diligently throughout the proceedings and that the amount of costs incurred by the plaintiff ($11,048.18) is a very modest sum in the circumstances. The plaintiff's solicitor further submitted, by reference to provisions of the guarantee agreement that concern costs, that it would be appropriate to order the defendants to pay the costs on an indemnity basis.
The plaintiff's solicitor also made numerous objections to the affidavit relied upon by the defendants on the present application. In his submissions in reply, the defendants' solicitor declined to make any specific response to these objections and left it to the Court to determine the appropriate course of action. The global objections to the affidavit are rejected. Having considered the affidavit as a whole, none of those parts of the affidavit to which particular objection is taken are critical to the Court's determination. It is thus not necessary for the purposes of this judgment to rule upon any of those objections. The defendants' solicitor also pointed out in his submissions in reply that the orders made by the Court did not provide for indemnity costs.
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Determination
As noted earlier, the Court's power to make a specified gross sum cost order is found in s 98(4)(c) of the Civil Procedure Act. That section provides that the Court may at any time before costs are referred for assessment, order that a party to whom costs are to be paid is entitled to a specified gross sum instead of assessed costs.
The plaintiff's costs incurred after 1 June 2018 have not been referred for assessment, so those costs can be the subject of an order under s 98(4)(c).
In Harrison v Schipp (2002) 54 NSWLR 738, Giles JA said (at [21]-[22]) in the context of discussing the predecessor provision to s 98(4)(c):
The power conferred by Pt 52A, r 6(2) is not confined, and may be exercised whenever the circumstances warrant its exercise. It may appropriately be exercised where the assessment of costs would be protracted and expensive, and in particular if it appears that the party obliged to pay the costs would not be able to meet a liability of the order likely to result from the assessment (Leary v Leary [1987] 1 WLR 72; [1987] 1 All ER 261; Sparnon v Apand Pty Ltd (Federal Court of Australia, von Doussa J, 4 March 1998, unreported); Beach Petroleum NL v Johnson (No 2) (1995) 57 FCR 119; Hadid v Lenfest Communications Inc [2000] FCA 628).
Of its nature, specification of a gross sum is not the result of a process of taxation or assessment of costs. As was said in Beach Petroleum NL v Johnson, the gross sum can only be fixed broadly having regard to the information before the Court; in Hadid v Lenfest Communications Inc it was said that the evidence enabled fixing a gross sum only if I apply a much broader brush than would be applied on taxation, but that … is what the rule contemplates. The approach taken to estimate costs must be logical, fair and reasonable (Beach Petroleum NL v Johnson; Hadid v Lenfest Communications Inc). The power should only be exercised when the Court considers that it can do so fairly between the parties, and that includes sufficient confidence in arriving at an appropriate sum on the materials available (Wentworth v Wentworth (Court of Appeal, 21 February 1996, unreported) per Clarke JA).
These observations were referred to with approval in Hamod v New South Wales [2011] NSWCA 375 at [813]. Beazley JA, with whom Giles JA and Whealy JA agreed, outlined (from [816]-[820]) a number of considerations relevant to the exercise of the Court's discretion:
The terms of s 98(4), together with the more general considerations reflected in the Civil Procedure Act, ss 56(1), 57(1)(d) and 60, suggest the factors that merit particular consideration include: the relative responsibility of the parties for the costs incurred (for example, Harrison v Schipp); the degree of any disproportion between the issue litigated and the costs claimed; the complexity of proceedings in relation to their cost; and the capacity of the unsuccessful party to satisfy any costs liability: Ritchie's Uniform Civil Procedure NSW at [s 98.45].
The exercise of the power conferred by s 98(4) is particularly appropriate where the costs have been incurred in lengthy or complex cases and it is desirable to avoid the expense, delay and aggravation likely to be involved in contested costs assessment. This may arise either from the likely length and complexity of the assessment process: Beach Petroleum NL v Johnson (No 2) at 120; Charlick Trading Pty Ltd v Australian National Railways Commission; Australasian Performing Rights Association Ltd v Marlin [1999] FCA 1006; or from the likelihood that the additional costs of formal assessment would disadvantage the successful party because of the likely inability of the unsuccessful party to discharge the costs liability in any event: Harrison v Schipp; Sony Entertainment (Aust) Ltd v Smith (2005) 215 ALR 788 at [90], [194]-[195]; Hadid v Lenfest Communications Inc [2000] FCA 628.
The power may also be exercised where a party's conduct has unnecessarily contributed to the costs of the proceedings, especially where the costs incurred have been disproportionate to the result of the proceedings: Leary v Leary [1987] 1 WLR 72; [1987] 1 All ER 261; Sony Entertainment (Aust) Ltd v Smith; Microsoft v Jiang (2003) 58 IPR 445; [2003] FCA 101; Ritchie's Uniform Civil Procedure NSW at [s 98.60]).
The assessment of any lump sum to be awarded must represent a review of the successful party's costs by reference to the pleadings and complexity of the issues raised on the pleadings; the interlocutory processes; the preparation for final hearing and the final hearing: Smoothpool v Pickering [2001] SASC 131. In the exercise of its discretion the court is not required to undertake a detailed examination of the kind that would be appropriate to taxation or formal costs assessment: Harrison v Schipp at 743; Hadid v Lenfest Communications Inc at [35]; Auspine Ltd v Australian Newsprint Mills Ltd (1999) 93 FCR 1 at 5; [1999] FCA 673.
The costs ordered should be based on an informed assessment of the actual costs having regard to the information before the court (for example, by relying on costs estimates or bills): Beach Petroleum NL v Johnson (No 2); Leary v Leary; Harrison v Schipp at 743; Sparnon v Apand Pty Ltd (FCA, 4 March 1998, unreported). The approach taken to estimate the costs to be ordered must be logical, fair and reasonable: Beach Petroleum NL v Johnson at 164-165; Hadid v Lenfest Communications Inc at [27]; Harrison v Schipp at 743. This may involve an impressionistic discount of the costs actually incurred or estimated, in order to take into account the contingencies that would be relevant in any formal costs assessment: Leary v Leary at WLR 76 per Purchas LJ; Beach Petroleum NL v Johnson (No 2) at 123; Auspine Ltd v Australian Newsprint Mills Ltd at 164- 165.
The fact that the Court adopts a "broad brush" approach to the assessment of costs in applications of this sort means that the detail that may be required in a formal costs assessment process will not usually be necessary (Bechara v Bates [2016] NSWCA 294 at [14]). However, the Court should only make such an order if it has sufficient confidence that it can arrive at an appropriate sum on the materials available (see Riva NSW Pty Ltd v Mark A Fraser and Christopher P Clancy trading as Fraser Clancy Lawyers (No 4) [2018] NSWCA 327 at [73]-[83]; South Western Sydney Local Health District v Gould (No 2) [2018] NSWCA 160 at [8]-[12]; Bechara v Bates (supra) at [12]; Shade Systems Pty Ltd v Probuild Constructions (Aust) Pty Ltd (No 3) [2018] NSWCA 50 at [8]-[10]; Colquhoun v District Court of New South Wales (No 2) [2015] NSWCA 54 at [6]-[7]).
The Court will usually be confident that it can arrive at an appropriate sum where there is some evidence of what costs might be recoverable by an applicant in a costs assessment process (see Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2011] NSWSC 11 at [21] and [56], cited with approval in Colquhoun v District Court of New South Wales (No 2) (supra) at [11]; Riva NSW Pty Ltd v Mark A Fraser and Christopher P Clancy trading as Fraser Clancy Lawyers (No 4) (supra) at [76]; Shade Systems Pty Ltd v Probuild Constructions (Aust) Pty Ltd (No 3) (supra) at [8]-[9]). But this is not to lay down an invariable rule. The information necessary for the Court to undertake a rational and reasonable assessment of the costs to be awarded which does justice to both parties will depend upon the circumstances of the particular case at hand (James v Australian and New Zealand Banking Group Limited [2016] NSWSC 833 at [17]).
In my opinion, the circumstances warrant an exercise of the power under s 98(4)(c) of the Civil Procedure Act in respect of the plaintiff's costs incurred after 1 June 2018. I consider that an assessment of costs, whilst not of a complex nature, would involve the parties in further unnecessary expense, out of proportion to the amount in issue. In addition, most of the costs concern adjourned directions hearings, which are events the reasonable costs of which can usually be estimated quite simply by the Court. That is so in this case, where the underlying reasons for the adjournments are readily apparent, and detailed evidence has been adduced of the actual costs incurred. The Court is in a position to broadly fix a gross sum in a manner that is fair as between the parties.
In the period after 1 June 2018 eight directions hearings were adjourned pending the making by the defendants of the payments agreed to be made to the plaintiff. In the absence of further agreement between the parties, that process involved ascertaining, through a costs assessment, the amount of costs payable by the defendants to the plaintiff for the period up to 1 June 2018.
The costs incurred by the plaintiff in respect of (or of and incidental to) the eight directions hearings that followed amounted to $6,303.21 in total. Of that amount, $990 was for fees to counsel. No payments were made by the defendants until late June 2019 (with a further small payment of interest on 13 August 2019). It is my view that the amounts of costs incurred were not unreasonable. However, I do not think that good grounds have been shown for an order that the costs be paid on an indemnity basis. The costs were not incurred in the exercise by the plaintiff of rights under the guarantee. Rather, they were incurred in connection with the agreement reached on 1 June 2018 that is embodied in the orders made on that day.
I think that an appropriate gross sum for such costs, instead of assessed costs, would be $4,000. That sum is based on full recovery of the amount of counsel's fees, and about 75% of the amount of the remaining costs. The amount yields an average of $500 for each directions hearing.
The plaintiff does not presently have a costs order in its favour in respect of the 16 August 2019 directions hearing. However, clause 4 of the agreement of 1 June 2018 provides that the defendants are to pay any further costs of and incidental to the proceedings until the required payments are made. By 16 August 2019, all of the amounts required to be paid pursuant to the 1 June 2018 agreement had been paid, save that it may be that a small amount of interest on the assessed costs remained outstanding. However, having regard to cl 4 of the 1 June 2018 agreement, it is appropriate that the plaintiff have a costs order in its favour in respect of the 16 August 2019 directions hearing which was appointed at a time when payments to the plaintiff remained outstanding.
By 16 August 2019, the only remaining issue of any substance concerned the plaintiff's post-1 June 2018 costs. In that regard, the defendants evidently maintained that $1,200 was a sufficient amount to pay, but the plaintiff disagreed. These matters ought to have been readily resolved by the parties, without the incurring of more than minor further costs. I do not accept that it was reasonable for the plaintiff to incur more than $4,700 in costs in connection with the directions hearing scheduled for 16 August 2019. That amount strikes me as plainly excessive. The plaintiff ought not receive an order in its favour to that extent. In my opinion, it is appropriate that the plaintiff receive a gross sum of $500 instead of assessed costs in connection with that directions hearing.
The parties should bear their own costs of this application. The defendants' position that $1,200 was appropriate, and the plaintiff's position that in excess of $11,000 was appropriate, were both unreasonable. A compromise was plainly called for, not only for commercial reasons, but also in furtherance of the overriding purpose referred to in s 56 of the Civil Procedure Act. The burden of the costs incurred as a result of the failure to reach a compromise should lie where they fall.
For the above reasons, I conclude that in respect of the plaintiff's costs of and incidental to the various directions hearings between 6 July 2018 and 16 August 2019 it is appropriate to order under s 98(4)(c) of the Civil Procedure Act that instead of assessed costs, the plaintiff is entitled to the specified sum of $4,500. Otherwise, in respect of costs incurred after 1 June 2018, the Court will order that each party pay its own costs.
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Decision last updated: 29 October 2019