TERRAVISION PTY LTD -v- BLACK BOX CONTROL PTY LTD [No 5] [2018] WASC 340 (9 November 2018)

1. Black Box agrees to pay all of Terravision's legal costs, such costs to be taxed.
2. By a letter from the plaintiff's solicitors later that day the plaintiff confirmed 'its acceptance of the defendant's offer of compromise on the terms set out therein'. There followed communications concerning orders to give effect to the settlement agreement.
3. On 4 April 2018 I made the following orders by consent:
   1. The plaintiff's claim against the defendant be dismissed.
   2. The defendant do pay the costs of the plaintiff including any reserved costs, such costs to be taxed if not agreed.
   3. There be liberty to apply in relation to the above orders upon three days' notice.
4. The plaintiff now seeks the following order:

In relation to order 2 of the orders made on 4 April 2018, the costs be assessed without reference to the limits provided for in respect of the following items of the [Legal Practitioners (Supreme Court) (Contentious Business) Reports and Determination 2010, 2012, 2014 and 2016] respectively:

1(a), 1(c), 4, 6(a), 7(b), 10(a), 16(b) and 17.

The plaintiff seeks that order as a special costs order pursuant to s 280(2) of the Legal Profession Act.

1. The defendant opposes the order sought on three grounds. First, the plaintiff has not established that the amount of costs allowable under the costs determinations is inadequate because of the unusual difficulty, complexity or importance of the matter. Secondly, if the court's discretion to make a special costs order under s 280(2) is enlivened, the court should exercise its discretion against making such an order because an amount of costs assessed without regard to the limits in the specified items of the determinations would be disproportionate to the agreed settlement sum. Thirdly, the settlement agreement includes a final and binding agreement as to costs which excludes the right to apply under s 280(2) of the Legal Profession Act to remove or increase the limits under items in the relevant costs determinations.
2. For the reasons which follow I find:
   1. I am of the opinion that the amount of costs allowable in respect of the matter under the relevant costs determinations is inadequate because of the complexity and importance of the matter.
   2. In the exercise of my discretion it is appropriate to make an order under s 280(2) of the Legal Profession Act.
   3. The appropriate order is to remove the limits on costs fixed in the relevant determinations for the items requested by the plaintiff.
   4. The plaintiff is not excluded by the settlement agreement from applying under s 280(2) of the Legal Profession Act to remove or increase the limits fixed in the relevant costs determinations.

1. The taxation of party and party costs is regulated by O 66 r 11 of the Rules of the Supreme Court 1971 (WA) and the applicable costs determinations. Section 280(2) of the Legal Profession Act provides that if a court is of the opinion that the amount of costs allowable in respect of a matter under a costs determination is inadequate because of the unusual difficulty, complexity or importance of the matter, the court may do all or any of the things set out in that subsection, which includes removing limits on costs fixed in the determination.
2. I am of the opinion that the amount of costs allowable in respect of the matter under the relevant costs determinations is inadequate, because of the complexity of the matter and because of the importance of the matter.
3. The plaintiff's solicitor, Mr Danagher swore an affidavit on 8 August 2018 in which he sets out the legal costs which the plaintiff has incurred. Mr Danagher also sets out a draft bill of costs drawn on the assumption that special costs orders will be made. Mr Danagher's evidence is that the costs incurred by the plaintiff and the costs in the draft bill of costs exceed many times the costs allowable under the relevant costs determinations for the items relating to writ of summons (1a), statement of claim (1c), reply and other pleadings (4), request for further and better particulars of a pleading (6a), discovery (7b), proceedings in chambers (10a), schedule of damages (16b) and preparation of case (17). Furthermore, I have formed the impression from my knowledge of the matter as case manager, that the amount of work reasonably necessary to carry out each of those items of work may well exceed the amount allowed for each item under the relevant costs determinations.
4. I am of the opinion that the inadequacy of the amount of costs allowable under the relevant costs determinations is because of the complexity of the matter. I form that opinion from my experience as case manager of the case. I am not persuaded that the matter was unusually difficult. It raised legal issues of contractual interpretation, contract variation, conventional estoppel and equitable estoppel. Those issues do not of themselves give rise to unusual difficulty. However, the context and factual circumstances were complex. Some of the matters sworn to by Mr Danagher give some impression of the scope of the action. Each party briefed a financial expert, who each filed three expert reports. Each party briefed a technical expert. The parties between them filed statements of eight lay witnesses for trial who made in total 18 witness statements. The trial of the action was listed for 12 days. The merged trial bundle comprised over 70,000 pages and was produced electronically. There were approximately 36 issues to be determined by the court at trial notwithstanding the preliminary issues already having been determined. There were a total of 232 documents filed with the court by the parties in the action. Prior to the trial which was listed for hearing over 12 days, I tried separate questions over five days in 2015: Terravision Pty Ltd v Black Box Control Pty Ltd [No 3] [2016] WASC 95. There are four published judgments in the matter.
5. I find that in addition to the matter being complex it is relevantly important. Terravision was incorporated in 1993. It is a software and electronics research and development company. It develops and supplies software systems to provide data for the location of vessels, vehicles and other assets, as well as data relating to the operation of those vessels, vehicles and assets. It holds intellectual property rights, including the copyright and software source code in certain software and materials and physical items that are utilised by Terravision software. Under its agreement with Black Box, subject to some qualifications, Black Box has the exclusive right to provide products and services that include or use Terravision products for vehicle and mobile asset tracking. There are other aspects of Terravision's business but that is a major aspect of it.

1. Counsel for Black Box submits that, even if it is open to the plaintiff to seek special costs orders, the court should not make such orders for discretionary reasons. The defendant says that to accede to the plaintiff's application would introduce disproportionality between the settlement sum and the costs claimed. The defendant puts its argument in two ways. First, the total costs sought to be recovered by the plaintiff are disproportionate to the settlement sum. Secondly, the costs sought by the plaintiff are disproportionate to the settlement sum, because the settlement sum represented the amount that the plaintiff would have recovered if it had been unsuccessful on part of its claim and the plaintiff should not recover costs for pursuing that part of its claim.
2. I will address the defendant's second argument first. The defendant's argument proceeds by the following steps. By accepting the defendant's offer, the plaintiff agreed to receive a settlement sum of $165,200 which is based on scenario 3 of the plaintiff's substituted schedule of damages filed on 23 February 2018. The plaintiff in effect elected not to proceed to trial in relation to scenarios 1 and 2 in its substituted schedule of damages. In its draft bill of costs, drawn on the basis that the special costs orders sought by the plaintiff will be granted, the plaintiff will seek to recover up to $949,130 which is more than five times greater than the settlement sum.
3. In my opinion, that is not a reason for refusing a special costs order. The plaintiff's substituted schedule of damages put forward claims based on four scenarios. Scenario 1 assumes that the fees payable to Terravision under the agreement are not affected by the Fee Assumption or the Cap Fee Agreement/Assumption defences advanced by Black Box. The amount claimed is $5,696,585 inclusive of interest. Scenario 2 assumes that the fees payable to Terravision under the agreement are affected by the Cap Fee Agreement/Assumption but not the Fee Assumption. The amount claimed is $610,641 inclusive of interest. Scenario 3 assumes that the fees payable to Terravision under the Agreement are effected by the Fee Assumption but not the Cap Fee Agreement/Assumption. The amount claimed is $164,360 inclusive of interest. Scenario 4 assumes that the fees payable to Terravision under the Agreement are affected by the Fee Assumption and the Cap Fee Agreement/Assumption. The amount claimed is $45,641 inclusive of interest.
4. It can readily be seen that the amount claimed by the plaintiff under scenario 3 corresponds to the settlement sum. That does not mean that by accepting Black Box's offer, Terravision agreed that the fees payable to Terravision under the Agreement are affected by the Fee Assumption; nor does it mean that Terravision considered that that would be the most likely outcome if the matter proceeded to trial. There are many reasons why a litigant may accept a compromise offer in an amount less than he considers the most likely outcome if the matter were to go to trial. For example, the risk of not obtaining the more favourable outcome than the settlement offer and consequently having to bear not only his own legal costs, but also those of his opponent may be a risk too great for the litigant to take. The defendant agreed that it would pay all of the plaintiff's costs. That includes the costs incurred by the plaintiff in pursuing all parts of its claim.
5. I turn to the defendant's primary argument based on proportionality. The nub of the defendant's argument is that the amount of costs which the plaintiff seeks to recover on the basis of a special costs order is more than five times greater than the settlement sum, and therefore to accede to the plaintiff's application would introduce disproportionality between the settlement sum and the costs claimed. The notion of proportionality is found in O 1 r 4B of the Rules of the Supreme Court 1971 (WA) which provides that matters in the court will, to the extent that the resources of the court permit, be managed and supervised in accordance with a system of positive case flow management with the objects of, amongst others, insuring the procedure applicable, and the costs of the procedure to the parties, are proportionate to the value, importance and complexity of the subject matter in dispute. I make two observations about those rules in so far as they concern proportionality of costs.
6. First, the primary object of the rules to which I have referred is prophylactic. The court manages matters so as to ensure that the processes and procedures of the court are conducted so as best to ensure that the procedures applied and the costs of the procedures to the parties are proportionate to the value, importance and complexity of the subject matter in dispute. The rules do not, in terms, require or authorise the court to limit the recovery of costs reasonably incurred by a party, so as to ensure proportionality between the amount of the costs that have been incurred and the value of the subject matter in dispute. That is not to say that proportionality is not relevant.
7. Proportionality is relevant to the making of a special costs order. The way in which the test of proportionality is to be applied in England was explained by Lord Woolf in Lownds v Home Office [2002] EWCA Civ 365; [2002] 4 All ER 775:

In other words what is required is a twostage approach. There has to be a global approach and an item by item approach. The global approach will indicate whether the total sum claimed is or appears to be disproportionate having particular regard to the considerations which CPR 44.5(3) states are relevant. If the costs as a whole are not disproportionate according to that test then all that is normally required is that each item should have been reasonably incurred and the cost for that item should be reasonable. If on the other hand the costs as a whole appear disproportionate then the court will want to be satisfied that the work in relation to each item was necessary and, if necessary, that the cost of the item is reasonable. If, because of lack of planning or due to other causes, the global costs are disproportionately high, then the requirement that the costs should be proportionate means that no more should be payable than would have been payable if the litigation had been conducted in a proportionate manner. This in turn means that reasonable costs will only be recovered for the items which were necessary if the litigation had been conducted in a proportionate manner [31].

1. CPR 44.5(3) is that the court must have regard to:

(a) the conduct of all parties, including in particular -

(i) conduct before, as well as during, the proceedings; and

(ii) the efforts made, if any, before and during the proceedings in order to try to resolve the dispute;

(b) the amount or value of any money or property involved;

(d) the particular complexity of the matter or the difficulty or novelty of the questions raised;

(e) the skill, effort, specialised knowledge and responsibility involved;

(f) the place where and the circumstances in which work or any part of it was done.

1. The second observation is that the costs should be proportionate, amongst other things, to the value, importance and complexity of the subject matter in dispute. Proportionality should not be judged retrospectively or simply by reference to the total amount recovered. The court must have regard to the facts and circumstances as they reasonably appeared to the plaintiff and its solicitor at the time when the costs were incurred. Hindsight is not determinative when costs are being assessed. That does not mean that the court ignores the amount actually recovered, as it can provide some sort of reality check. Where the sum agreed is substantially less than the amount claimed, that may call into question the notion that the claim was genuinely or reasonably thought to be worth what it was claimed to be worth while it was being prosecuted. However, that is only one factor in assessing the value and importance of the subject matter of the claim.
2. The asserted disproportionality between the settlement sum and the plaintiff's claimed costs is not a reason for refusing to make a special costs order if the costs were not unreasonably incurred and are not in an unreasonable amount. I have formed the impression, based on my experience and observations as case manager, that the nature of the plaintiff's claims and the nature and extent of the defences advanced by the defendant, reasonably required the plaintiff to undertake an amount of work that is likely to have incurred costs in excess of the limits under the relevant costs determinations. That is not to say that the defendant acted unreasonably in advancing its defences, but the amount of work reasonably required to be undertaken by the plaintiff is a consequence of the nature of the case and of the defences advanced by the defendant. The defendant agreed to pay the plaintiff 'all' of its costs. In the circumstances of this case, it is appropriate to make a special costs order notwithstanding that the plaintiff recovered only a portion of the amount it claimed.
3. In its written submissions the defendant submitted that the court should not exercise its discretion to allow the plaintiff to seek a special costs order, because the defendant settled the claim on the basis that it would pay to the plaintiff taxed costs, that is costs payable according to those fixed or contained within the relevant determinations, and did not settle the claim on the basis that it will pay to the plaintiff any costs by reference to any special costs orders that would be sought. In my opinion this is a variation of the defendant's argument that the settlement agreement excluded the plaintiff from seeking a special costs order. For the reasons set out below I do not accept that argument.

1. I have considered each of the scale items in respect of which the plaintiff asks that the limits be removed. The appropriate order in this case is to remove the limits on costs fixed in the relevant determinations for each of the items claimed by the plaintiff. Whether or not in relation to any of those items the plaintiff should be allowed an amount higher than the limit of costs fixed in the relevant determinations is a matter to be determined by the taxing officer. The total amount of legal fees referred to in the plaintiff's draft bill exceeds the limits under the relevant items by a very substantial margin. By making the special costs order sought it does not follow that in respect of any of those items an amount in excess of the limits in the relevant determinations will necessarily be allowed on the taxation. It will be for the taxing officer to make an assessment of what is reasonable in all the circumstances.

Special costs order not precluded by settlement agreement

1. The defendant's primary argument is that the settlement agreement includes a final and binding agreement as to costs, which excludes the right to apply under s 280(2) of the Legal Profession Act to remove the limits on costs fixed in the relevant determinations. Determination of that issue turns on the proper interpretation of the agreement.
2. The High Court has affirmed on numerous occasions the objective approach to be adopted in determining the rights and liabilities of parties to the contract. In Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640 French CJ, Hayne, Crennan and Kiefel JJ said:

The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding 'of the genesis of the transaction, the background, the context [and] the market in which the parties are operating'. As Arden LJ observed in Re Golden Key Ltd (in rec), unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption 'that the parties ... intended to produce a commercial result'. A commercial contract is to be construed so as to avoid it 'making commercial nonsense or working commercial inconvenience' [35]. (citations omitted)

1. The ordinary and natural meaning of the words 'Black Box agrees to pay all of Terravision's legal costs, such costs to be taxed' does not exclude the right of Terravision to apply for a special costs order under s 280(2) of the Legal Profession Act. The words 'such costs to be taxed' refer to the process by which costs are quantified. They do not refer to the basis on which the taxing officer is to assess those costs.
2. The defendant does not say that any term is to be implied into the settlement agreement to the effect that the plaintiff may not apply for a special costs order under s 280(2) of the Legal Profession Act, or that the costs are to be assessed on the basis of the applicable costs determinations without the limits on costs fixed in the relevant costs determinations being removed or increased. The defendant's case is that on its proper construction that is what the settlement agreement means. I do not agree; it does not say that.
3. The defendant refers to two authorities in support of its position: Jenkins v GJ Coles [1993] VicRp 10; [1993] 1 VR 155 and Thomas v Powercor Australia Ltd [No 9] [2012] VSC 207. I do not derive any assistance from those cases. They turned upon the construction of the terms of particular documents. The present case must be determined upon the construction of the agreement in this case. In any event, the cases referred to may readily be distinguished. In Jenkins v GJ Coles the court was concerned with the terms of an order made after the compromise of an action, the words of the order are different from those of the settlement agreement in this case and the statutory scheme, under which the applicant sought that the costs be increased by a factor of 30%, are different from the statutory scheme under which the plaintiff seeks a special costs order in this case. In Thomas v Powercor Australia Ltd the court was again concerned with the same or similar statutory scheme as in Jenkins v GJ Coles. Again, the words being interpreted are different from those in this case. Importantly, the settlement agreement in that case contained detailed provisions in relation to costs which are referred to but not reproduced in the judgment.
4. Counsel for the defendant also referred the court to the judgment of Pritchard J in Maas v O'Neill [2013] WASC 379 (S). Counsel did so quite properly in the discharge of his duty to draw to the attention of the court an authority arguably against his argument. In that case, Pritchard J made a special costs order notwithstanding that the orders made by consent to resolve the proceedings contained orders as to costs but made no provision for a special costs order. Again, I derive no assistance from that case. The terms of the order and the context in which it was made are different from this case.
5. In summary, I find that on the proper construction of the settlement agreement, the agreement did not exclude the right of the plaintiff to apply under s 280(2) of the Legal Profession Act to remove the limits on costs fixed in the relevant determinations. The plaintiff is not excluded from making that application.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.