Tzaneros Investments Pty Ltd v Walker Group Constructions Pty Ltd

1. Period 1 covers the period from the time work commenced preparing the proceedings until the time the proceedings were discontinued against Walker. Period 2 covers the period from the time Tzaneros discontinued against Walker until the time from when Tzaneros's costs were awarded on an indemnity basis. Period 3 covers the period from the time WGC was ordered to pay Tzaneros's costs on an indemnity basis until the date of my principal judgment. Period 4 covers the period from the date of my principal judgment to the date before the filing of WGC's first stay application in the Appeal Proceedings. This period is not covered by a costs order. In para [103] of the Costs Judgment, I stated that if the parties could not reach agreement on the costs referable to that judgment within seven days, they should each provide to my Associate within a further 14 days written submissions not exceeding five pages in relation to those costs, and that I would determine the matter on the papers. Neither party chose to file submissions in accordance with that order. It appears that Tzaneros and WGC reached agreement on the treatment of those costs, but agreement was not reached with AMT and due to an oversight the matter was not pursued. Period 5 relates to the costs of the Appeal.
2. In relation to Period 1, Tzaneros does not claim: 1. Its costs in relation to the Strike Out Motion; 2. Its costs in relation to the First Amendment Motion; 3. Its costs in relation to the claim against Walker to the extent that those costs were additional to the costs that Tzaneros would have had to incur in any event in proceeding against WGC; 4. Its costs of assessing costs in relation to the Strike Out Motion; 5. A disbursement of $346.50 which was unrelated to the proceedings; and 6. Its costs in relation to its claim against AMT to the extent that those costs were additional to the costs that Tzaneros would have had to incur in any event in proceeding against WGC (and in dealing with WGC's claim against AMT).
3. In relation to Period 2, Tzaneros does not claim: 1. Its costs in relation to its claim against AMT to the extent that those costs were additional to the costs that Tzaneros would have had to incur in any event in proceeding against WGC (and in dealing with WGC's claim against AMT); and 2. Its costs in relation to the costs assessment relating to the Strike Out Motion.
4. In relation to Period 3, Tzaneros does not claim: 1. Its costs in relation to the Second Amendment Motion; 2. Its costs in relation to the Third Amendment Motion; 3. Its costs in obtaining certain commercial advice from its solicitors which is covered by the accounts relating to the proceedings; 4. Its costs in relation to a transaction involving the sale of the leasehold interest in the terminal; 5. Its costs arising from three duplicated invoices from Counsel; 6. Its costs in relation to its claim against AMT to the extent that those costs were additional to the costs that Tzaneros would have had to incur in any event in proceeding against WGC (and in dealing with WGC's claim against AMT); and 7. Its costs in advising Mr Tzaneros in relation to jury duty.
5. In calculating the Unclaimed Costs in respect of each period, Mr Sarvaas says in his affidavit evidence that "I have adopted a broad brush approach and not a meticulous assessment on a line by line basis consistent with the principles applicable to a gross sum costs application".

Relevant legal principles

1. The power to make a gross sum costs order is conferred by s 98 of the Civil Procedure Act 2005 (NSW), which relevantly provides that the Court may make an order that a party pay costs on a gross sum basis at its discretion and at any time before costs are referred for assessment. The section confers a wide discretion. Factors which are relevant to the exercise of the Court's discretion include the parties' relative responsibility for the costs incurred, the degree of disproportionality between the issues litigated and the costs claimed, the proceedings' complexity in relation to their cost, and the unsuccessful party's capacity to satisfy any costs liability: see Hamod v State of New South Wales [2011] NSWCA 375 at [816] per Beazley JA (with whom Giles and Whealy JJA agreed).
2. In some cases, the protracted nature of the proceedings may provide a compelling reason to exercise the discretion to order the payment of gross sum costs. The Court may make a gross sum costs order where past experience of the parties' delaying conduct indicates a risk that a costs assessment would result in further, unnecessary delay: Coshott v Parker (No 3) [2015] NSWSC 1195 at [71]-[73] per Hall J quoting Bobb v Wombat Securities Pty Ltd (No 2) [2013] NSWSC 863 at [8] per Beech-Jones J; Harvey v Barton (No 4) [2015] NSWSC 809 at [42]-[44] per Slattery J.
3. However, the Court will not make a gross sum costs order unless it can be satisfied that it has sufficient information before it to be satisfied that "it can do so fairly between the parties, and that includes sufficient confidence in arriving at an appropriate sum on the materials available": Harrison v Schipp [2002] NSWCA 213 at [22] per Giles JA. The calculation of that sum must be "logical, fair and reasonable" after an informed assessment of the available information: Beach Petroleum NL & Claremont Petroleum NL v Johnson (1995) 57 FCR 119; (1995) 135 ALR 160 at 164-5 per von Doussa J. The Court is entitled to take a "broader brush" approach than would be applied on assessment, but in doing so "it must be confident that the material before it enables it to make a sufficiently reliable calculation or estimate of an appropriate costs sum. And a decision as to what is an appropriate sum will depend to a large extent on reaching some kind of view on what the outcome of an assessment might be": Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2011] NSWSC 11 at [21] per Barrett J.

The issues

1. In the present case, the parties raised a number of issues said to be particularly relevant to the exercise of the Court's discretion in this case. Those factors may conveniently be divided into the following (overlapping) categories: 1. Whether the nature of the proceedings makes this an appropriate case in which to make a gross sum costs order; 2. Whether in the circumstances of this case, the Court can fairly assess costs on a gross sum basis; 3. Whether Tzaneros's delay in making the application provides a discretionary reason for refusing the application; and 4. Whether Tzaneros will be able to recover the costs of assessment.

Nature of the proceedings

1. The parties point to competing considerations in relation to this issue. Tzaneros, relying on evidence given by Ms Valerie Higinbotham, an expert costs consultant, submits that the assessment of costs will take approximately one year and possibly longer and an additional four or five months in the event of an application for a review. It also submits, again relying on evidence given by Ms Higinbotham, that Tzaneros's costs of an assessment (exclusive of GST) will be approximately $215,000. An assessment of costs on a gross sum basis would be substantially cheaper and quicker. WGC does not accept those estimates, but in any event it submits that this is not the type of case where typically the Court will make an order for the payment of a gross sum in respect of costs rather than assessment. In its submission, typically gross sum costs orders are made in very large and complex cases where the difficulties of assessment are great, or simple cases where the costs of assessment are disproportionate to the amount involved. Here, Tzaneros claims approximately $4,200,000 in costs. There is no reason to think that the costs of assessment would be disproportionately large. The proceedings were commenced in 2009. Judgment was delivered in February 2016. A further two years have passed since that time. A delay of a further year is not disproportionate to the time that has already elapsed. The costs of assessment are not exorbitant compared to the costs claimed.
2. In my opinion, the considerations advanced by the parties are not of great significance either way. The case was a substantial one, as the legal fees incurred by Tzaneros demonstrate. The assessment of costs will be complex and time consuming. They are factors which weigh in favour of making a gross sum costs order. However, the estimated costs of assessment, the time the assessment will take and the complexity involved in an assessment are not so great that they provide a strong reason for making a gross sum costs order.

Whether the court could fairly assess costs on a gross sum basis

1. WGC submits that the Court cannot fairly and rationally assess costs on a gross sum basis for a number of reasons. First, WGC submits that there is inadequate information before the Court to permit it to form a view on which costs should be excluded. Mr Sarvaas has identified the costs that he accepts should be excluded. However, he has not placed before the Court sufficient information on what those costs were. Instead, he has taken what he says is a "broad brush" approach to the identification of those costs. That is something that the Court is entitled to do, but it is not something that the parties are entitled to do in placing information before the Court relevant to the determination of an appropriate amount.
2. Second, WGC submits that the evidence relied on by Tzaneros does not provide any rational basis for apportioning common costs between the claim against WGC (which succeeded) and the claim against AMT (which failed).
3. Third, WGC submits that the delay in bringing the application means that any broad brush assessment of costs based on impression will be difficult and may be unreliable.
4. In my opinion, there is considerable force in these submissions.
5. It is necessary for Tzaneros to place sufficient information before the Court so that the Court can fairly determine on a rational basis the amount of costs that should be awarded. As a starting point, that will normally require the costs applicant to place all the invoices in respect of which it makes a claim for costs before the Court. Where those invoices relate to those costs which are recoverable and those which are not, it seems to me necessary for the costs applicant to identify which costs are claimed and which are not and to give a brief explanation of why. Tzaneros has not done that in this case. Rather, as I have said, Mr Sarvaas has estimated the value of the work done which is not covered by the costs order using a broad brush approach based on his memory of how much time was spent on the work not covered by the costs order in Tzaneros's favour. There is, however, no means by which WGC can test the conclusions that Mr Sarvaas has reached or by which the Court can be satisfied that what he has done is reasonable.
6. As to WGC's second point, Tzaneros submitted that apportionment was not appropriate in this case and that, in submitting that it was, Tzaneros had mis-read the decision of the Court of Appeal in Bookarelli Pty Ltd v Katanga Developments Pty Ltd [2017] NSWCA 69. In that case, Katanga sought orders against Bookarelli and a solicitor in relation to funds held by the solicitor which had been frozen on Bookarelli's application. The proceedings were settled on the basis that Bookarelli agreed to pay Katanga's costs as agreed or assessed but Katanga had to pay the solicitor's costs. The costs assessor permitted Katanga to recover 85 per cent of the amount it claimed for "work performed for both matters": at [23]. Before the Review Panel, Bookarelli contended that the assessor should have identified common costs and apportioned them by reference to the number of parties in accordance with a "rule of thumb" applying in Chancery: at [26]. The Review Panel rejected that submission. On appeal, Hatzistergos DCJ held that the Panel had made no error of law. There was a further appeal to the Court of Appeal. The primary issue was whether the terms of the consent orders required the application of the rule of thumb. The Court of Appeal held that they did not. Sackville AJA also said, in obiter, that the Chancery rule of thumb was "no more than a guide that may be taken into account in cases where there are multiple defendants, some of whom are successful and some of whom are not. It is not a 'rule' that applies in all cases and its application depends on the particular circumstances of each case": at [49] per Sackville AJA (with whom Macfarlan and Payne JJA agreed).
7. In my opinion, the issue in this case is not so much whether costs should be apportioned as whether there is a reasonable basis for dividing those costs that should be allowed or taken account of because they were incurred in connection with the claim against WGC and those that should not because they were incurred in connection with the claim against AMT. In the circumstances of this case, in my opinion the appropriate approach would be to permit Tzaneros to recover all the costs it incurred in relation to the claim against WGC even if the work the subject of those costs was also relevant to the claim against AMT. I also accept that, in principle, in determining costs for the purposes of a gross sum costs order, that could be done by the Court considering the total costs incurred in the claim against both WGC and AMT and allowing a proportion of those costs on a broad brush approach to reflect the fact that some of those costs were only relevant to the claim against AMT.
8. However, in my opinion, the greater the delay between the hearing and the exercise of the Court's discretion, the more difficult that becomes and the more unreliable the impressions formed by the Court on an appropriate proportion are likely to be. In the present case, there has been a long delay between the hearing and the time when the Court would be required to exercise its discretion. This is simply one aspect of the third point raised by WGC. If the Court is required to make a gross sum costs order, it will also be required to make a broad brush reduction to allow for matters such as the fact that the actual costs charged may be excessive for the work that was done, or unnecessary or duplicative. The Court may well form impressions on those matters during the course of the trial and preparing a judgment. However, once judgment is delivered, any impressions that are formed are likely to fade and become less reliable. Here, it has been more than two years since the trial occurred and any impression I have left about the conduct of the case is at best faint.
9. Tzaneros submitted that it would be possible for the Court to re-acquaint itself with the case, presumably by considering some of the evidence, the transcript and possibly the submissions. That much may be accepted. But that would be a poor substitute for the original impressions formed during a hearing and judgment writing and is somewhat inconsistent with at least one of the purposes of a gross sum costs order, which is to provide a swift and efficient means of fixing costs.
10. In my opinion, these considerations count against making a gross sum costs order.

Delay generally

1. In my opinion, the delay in making the application provides another discretionary reason for refusing to make the order.
2. To a large extent the significance of delay and the reasons it provides a discretionary ground for refusing to make a gross sum costs order have been addressed in what I have said. Any delay in the costs assessment process must be understood in a context in which Tzaneros has already chosen to delay more than two years before making the application. And any delay in making the application makes it more difficult to assess an appropriate gross sum, which in turn suggests that such an order should not be made.
3. Tzaneros takes issue with the suggestion that it has delayed or at least delayed unreasonably before making an application for a gross sum order. It submits that it was reasonable for it to wait for the outcome of the appeal before making an application for a gross sum costs order and that it was reasonable for it to negotiate to resolve the quantum of costs before making such an application. Once those matters are taken into account, it has not been guilty of delay.
4. I do not accept those submissions for three reasons. First, I do not accept that the existence of an appeal provides a ground for delay in making an application for a gross sum costs order. There is no suggestion in this case that the appeal affected Tzaneros's ability to make an application for a gross sum costs order. It therefore had a choice. It could have made an application for a gross sum costs order and in doing so run the risk that the costs of the application would be wasted if the appeal were successful. Alternatively, it could have accepted that costs should be assessed in the normal way and delayed assessment until after the appeal was determined in order to minimise the risk that costs would be wasted. It is not clear to me why Tzaneros should be entitled both to the benefits of a gross sum costs order and the ability to delay the determination of costs until the appeal was determined, particularly when, as I have said, there are practical reasons why an application for a gross sum costs order should be made promptly.
5. Second, even if I am wrong about the first point, in this case there was a contested hearing in relation to costs. That contested hearing proceeded on the basis that costs would be assessed and the orders of the Court were framed in those terms. In particular, the orders for the payment of interest on costs were framed on the basis that there would be an assessment. There was an appeal in relation to the costs order that was made but no appeal in relation to the order for interest. In my opinion, if Tzaneros had wanted to make an application for a gross sum costs order, it should have done so as part of the contested hearing in relation to costs and it should not have sought orders that proceeded on the basis that costs would be assessed.
6. Third, I do not think that the delay can be blamed entirely on the appeal. The decision in the appeal was handed down in March 2017. It was not until November 2017 that Tzaneros made the application for a gross sum costs order. It explains the delay because it was seeking to resolve costs. However, why it should have taken approximately eight months to seek to resolve the question of the quantum of costs and file an application for a gross sum costs order is not entirely clear. It is noteworthy that if Tzaneros had sought to assess its costs promptly after the decision in the appeal was handed down, it is likely that the assessment process would be complete or close to complete by now.

Recovery of costs

1. The short answer to this point is that Walker accepts that the indemnity it gave would cover Tzaneros's costs of assessment as well as assessed costs. There is no suggestion that Walker does not have the financial ability to pay Tzaneros's costs of assessment. Consequently, this does not provide a discretionary reason for making a gross sum costs order.

Conclusion and Orders

1. Taking account of the matters I have referred to, in my opinion Tzaneros is not entitled to a gross sum costs order in its favour.
2. It follows that the orders of the court are that the plaintiff's motion filed on 24 November 2014 must be dismissed with costs.

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