Vardas v Coshott & Ors

Pre-Action Correspondence between the parties - May to July 2016

1. Before commencing these proceedings Mr Vardas' solicitors made many fruitless attempts to persuade the Coshotts to abandon their costs assessment application. On 24 May 2016, Mr Vardas' solicitors, Yeldham Price O'Brien Lusk (YPOL) sent to the Coshotts' solicitor, Mr Bruce Hocking, a letter inviting the Coshotts to withdraw the costs assessment application, on the basis that it could not proceed in light of the terms of the Deed and the 2007 Orders. This letter enclosed a letter YPOL had sent the previous day to the costs assessor, Mr Wall, the third defendant in these proceedings. The 23 May 2016 letter to Mr Wall, referred to in the Court's first judgment, was also copied to Mr Hocking and provided copies of the Deed and the 2007 Orders.
2. Mr Hocking responded on 27 May 2016 by letter to Mr Wall. His response foreshadowed arguments that were to be deployed later on the Coshotts' behalf: Mr Hocking said that the Deed applied to "claims" and the 2004 costs orders were not a "claim", but rather a debt owing by Mr Vardas to the Coshotts. Mr Hocking requested that Mr Wall proceed with the costs assessment.
3. On 5 July 2016, YPOL sent an email to Mr Hocking. The following day Mr Hocking responded, copying in Mrs Coshott, to inform YPOL that he had retired from legal practice and that YPOL should contact Mr Coshott directly. YPOL replied less than an hour later, copying in Mrs Coshott, to ask whether the Coshotts intended to pursue a costs assessment application and to request their direct contact details.
4. On 7 July 2016, YPOL sent a letter to the Coshotts, enclosing the Summons and supporting affidavit which had been filed earlier that day. Orders for substituted service were made on 8 July 2016. YPOL sent a second letter on 11 July enclosing these orders, with reference to the Summons filed. But the Coshotts did not appear at the first directions hearing on 18 July 2016.
5. YPOL sent subsequent correspondence to the Coshotts regarding the orders made at the first directions hearing. Between 7 July 2016 and 27 July 2016, YPOL sent at least six letters to the Coshotts. They all went unanswered.
6. On 30 August 2016, YPOL sent the Coshotts a second invitation to withdraw their costs assessment, because of what it said was the "futility" of the costs application. This invitation also went unanswered. The Coshotts filed a Notice of Appearance on 15 December 2016.
7. Following the hearing of the proceedings and prior to delivery of the reasons in the Court's first judgment, on 2 February 2017, YPOL sent a letter to the Coshotts' solicitor, Mr Nicholas Prassas. In this letter, YPOL confirmed Mr Vardas' intention to apply for costs on an indemnity basis and for a gross sum costs award.

Mr Vardas' costs

1. The total costs billed to date for Mr Vardas' legal fees are: $45,413 in solicitors' legal fees (exclusive of GST), $10,000 in counsel's fees (exclusive of GST) and $3,854.61 in disbursements (inclusive of GST). These are fully set out and explained in the Lusk affidavit.
2. Mr Lusk estimates and itemises by class that a further $20,000 in un-rendered costs have been incurred and together with additional costs required to finalise these proceedings. These include $12,375 in counsel's un-rendered fees. The global amount of Mr Vardas' estimated costs is therefore $79,267.61. But Mr Vardas now limits his claim for his costs to a gross sum of $60,000.
3. It is not in dispute that the invoices issued for legal fees incurred by Mr Vardas were paid by LawCover Insurance Pty Limited (Lawcover).

Costs assessor's costs

1. Upon receiving notification of the Court's first judgment from YPOL, Mr Wall wrote to the parties giving a figure for his costs to date. Mr Wall confirmed his costs to completion of the matter would be approximately $1,600.00.

Parties' Submissions on Costs

1. Mr Vardas' Submissions. Mr Vardas contends that given his success in the first judgment, a costs order should be made against the Coshotts on an indemnity basis and for a specified gross sum of $60,000. Mr Vardas advanced two bases for the award of indemnity costs in his favour: first, the nature and source of the controversy between the parties; and secondly, the Coshotts' application for costs assessment was said to be akin to an abuse of process, given the Coshotts' conduct and the correspondence between the parties about costs. In support of this contention, Mr Vardas relies on CPA, s 56 and upon the statement of Kenny J in Bitek Pty Ltd v IConnect Pty Ltd [2012] FCA 506 at [12] ("Bitek"): "As the Full Court said in Hamod v New South Wales (2002) 188 ALR 659 at 665 (per Gray J, with whom Carr and Goldberg JJ agreed), indemnity costs "serve the purpose of compensating a party fully for costs incurred, as a normal costs order could not be expected to do, when the Court takes the view that it was unreasonable for the party against whom the order is made to have subjected the innocent party to the expenditure of costs"
2. On the first basis of his submission, Mr Vardas submitted the Coshotts' arguments advanced at the hearing before me were tenuous; and that the Coshotts had not informed him of their proposal to apply for costs assessment before they commenced, nor provided him with an opportunity to intervene to prevent the costs incurred thereafter in arguing the matter before this Court.
3. On the second basis of his submission, Mr Vardas drew the Court's attention to the unanswered correspondence sent on behalf of his client to the Coshotts and the several offers sent for Mr Vardas to the Coshotts seeking the withdrawal the costs assessment application, submitting that the Coshotts had not honoured obligations under CPA, s 56.
4. Mr Vardas advanced three reasons for making a gross sum costs order in his favour under CPA, s 98(4)(c): the likely protracted nature of any further costs assessment process, the limited financial means of the Coshotts and the costs of the costs assessment process likely being disproportionate to the costs that may be recovered in the process.
5. Mr Vardas' evidence shows that Mr Coshott is a discharged bankrupt and property searches indicate the Coshotts do not hold any property in their respective names. In support of his submission that the Coshotts' financial position supports a gross sum costs order being made, Mr Vardas submitted that the Coshotts are also presently required to satisfy other judgment debts.
6. The Lusk affidavit outlines the quantum of the costs sought by Mr Vardas, as well as the likely costs of an additional costs assessment application in support of his submission regarding the likely disproportionate award of costs in any costs assessment.
7. The Coshotts' Submissions. Counsel for the Coshotts, Mr Jones raised a preliminary counter-argument. He submitted that because Mr Vardas was indemnified by LawCover and because an obligation for him to pay his costs personally had not been established on the evidence, Mr Vardas should not now be entitled to an order awarding costs in his favour.
8. In response to this preliminary argument, Mr Vardas' solicitors filed in Court the affidavit of Alexandra Elizabeth Bartlett of 23 February 2017 without objection. Ms Bartlett was the solicitor acting for Mr Vardas under the supervision of Mr Lusk. Ms Bartlett gave evidence on information and belief, regarding Lawcover's obligation to pay Mr Vardas' costs incurred in the proceedings. Neither party tendered the Law Cover policy covering Mr Vardas. But they were content to have the Court decide the issue on the evidence as it stood.
9. But the Court was concerned whether this preliminary argument involved a genuine contest. It was not in dispute that Lawcover operated with its solicitor-clients in a commercial environment. The Court raised with the parties that Lawcover was undoubtedly obliged to indemnify Mr Varad and had rights to recover costs in his name as a result and that even if Lawcover had paid Mr Vardas under a mistake of law or fact, restitution from Mr Vardas would likely be available to Lawcover, consistent with the approach taken by the High Court in David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 (David Securities) and Mr Vardas could recover costs as he would then be without indemnity.
10. Otherwise in response to Mr Vardas' submissions, the Coshotts contended in summary that: 1. a gross sum costs order is not appropriate in this case. 2. there is no basis for the particular gross sum sought by Mr Vardas; 3. even if a gross sum were to be awarded, certain costs claimed are unreasonable; and 4. the gross sum claimed must exclude the costs assessor's costs.
11. The Coshotts' written submissions indicated their intention to provide evidence at the costs hearing of "a substantial sum" held in their solicitors' trust account on their behalf. This was their first response to Mr Vardas' submission regarding their limited means. But this submission was withdrawn before the costs hearing.
12. The Coshotts contest the global figure of $79,257.06 Mr Vardas claims as his costs of the proceedings. In written and in oral submissions, Mr Jones for the Coshotts challenged a sum of $11,000 incurred for the preparation of affidavits which he says ultimately were not read at the hearing and were not material to the proceedings. Mr Vardas says in answer that these affidavits were prepared for interlocutory purposes concerned with his application for substituted service on the Coshotts.
13. Finally, the Coshotts raised a jurisdictional question in their submissions based on s 208F(4) of the Legal Profession Act 1987 (NSW) ("the 1987 Act"). They questioned whether this Court has any power to made orders regarding the costs of the costs assessment. The Coshotts submit that this provision grants exclusive power to the costs assessor to make orders as to such costs. No authority beyond the construction of s 208F was relied upon in support of this submission.

Consideration

1. The issues for determination are: (1) whether a costs order on an indemnity basis should be made; and (2) whether a gross sum costs order should be made.
2. First, the Coshotts' preliminary argument fails. Mr Jones ultimately conceded, and correctly so, that if Lawcover were obliged to indemnify Mr Varedas and had done so then it would have standing to recover costs from the Coshotts. The Bartlett affidavit affirms that Lawcover is obliged to indemnify Mr Vardas and has done so. But even if Lawcover had paid Mr Vardas' legal fees by mistake, established authority including David Securities would indicate that the costs could be recovered from him and his right to seek costs would continue. I do not find the Coshotts' preliminary argument persuasive. It is not necessary in my view to consider it further.

(1) Whether a costs order on an indemnity basis should be made

1. Unless this Court orders otherwise, costs are to follow the event: Uniform Civil Procedure Rules 2005 (NSW) ("UCPR"), 42.1. Such costs are to be assessed on the ordinary basis, unless the Court orders otherwise [or the rules otherwise provide]: UCPR, 42.2.
2. CPA, s 98 provides: "98 Courts powers as to costs (1) Subject to rules of court and to this or any other Act: (a) costs are in the discretion of the court, and (b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and (c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis. (2) Subject to rules of court and to this or any other Act, a party to proceedings may not recover costs from any other party otherwise than pursuant to an order of the court. (3) An order as to costs may be made by the court at any stage of the proceedings or after the conclusion of the proceedings. (4) In particular, at any time before costs are referred for assessment, the court may make an order to the effect that the party to whom costs are to be paid is to be entitled to: (a) costs up to, or from, a specified stage of the proceedings, or (b) a specified proportion of the assessed costs, or (c) a specified gross sum instead of assessed costs, or (d) such proportion of the assessed costs as does not exceed a specified amount."
3. Authority establishes that the question to be asked is whether the circumstances justify an order for indemnity costs in the particular case: Bitek Pty Ltd v IConnect Pty Ltd [2012] FCA 506; Colgate-Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225. The categories of case in which indemnity costs will be awarded are not closed: Colgate-Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225 at 233-234 per Sheppard J.
4. Caution should be exercised when the conduct of any party prior to commencement of the litigation is raised to ask the Court to exercise its indemnity costs discretion: see Harrison v Schipp [2001] NSWCA 13 at [136] - [139] per Giles JA; Velissaris v Fitzgerald [2008] VSCA 152 at [20] per Maxwell P and Mandie JA. Such conduct is usually irrelevant to the Court's indemnity costs consideration. But a party's conduct leading up to the litigation may be relevant, if it bears upon, or informs, the conduct of the party in the litigation: see Ventouris Enterprises Pty Ltd v Dib Group Pty Ltd (No. 3) [2010] NSWSC 1479 at [12] citing Hypec Electronics Pty Limited (in liquidation) v Mead; BL GY International & Hypec Electronics Pty Ltd (in liquidation) (2004) 61 NSWLR 169 at 179 [42], 180, [45] - [47] per Campbell J.
5. The Coshotts are no strangers to litigation: Coshott v Barry [2016] FCAFC 173; Coshott v Barry (2015) 91 NSWLR 1; [2015] NSWCA 257; Coshott v Parker & Collins as Executors of the Estate of the late Michael Petrovic Lenin [2015] NSWSC 998; Coshott v Woollahra Municipal Council [2008] NSWCA 176; Coshott v The Owners SP No 48892 [2008] NSWSC 854. Their costs assessment application was likely to provoke Mr Vardas into seeking a Court stay of the costs assessment process. Although the costs assessment application was not in itself a step in the present litigation, it was conduct calculated or having the effect of leading directly to the litigation. It was filed without notice and required Mr Vardas to respond, using the power of the Court.
6. Mr Vardas' submission regarding the Coshotts' lack of notice is persuasive. Had the Coshotts informed Mr Vardas of their intentions before filing the costs assessment, at least some of the expenses incurred by the parties in the proceedings to date may have been avoided. Mr Jones for the Coshotts properly conceded that Mr Vardas appeared to have no option other than to commence these proceedings once the Coshotts had filed their costs assessment application and the costs assessor had indicated he could not determine the dispute between the parties. Despite being pre-commencement conduct, the lack of notice before filing of the costs assessment application, together with the later egregious failure to reply to multiple pieces of correspondence during the litigation protracted this dispute.
7. This is an unusual case, with aggravating factors. The Coshotts filed the costs assessment application nine years after the Deed and the 2007 Orders. Finality is what the parties should have expected following the 2007 Orders. But this was not afforded to Mr Vardas. While the arguments the Coshotts put were not frivolous, Mr Vardas has been put to the expense of bringing these proceedings and testing the Deed and the orders made in the earlier proceedings in part because of the peremptory way the Coshotts filed the costs assessment application and then inexplicably failed to reply to litigation correspondence.
8. Once the litigation started, the Coshotts continued their uncooperative approach and failed to appear at the first directions hearing. In my view all this warrants an indemnity costs order.
9. There is a sub-issue on indemnity costs: the reasonableness of the sum sought for indemnity costs. The Coshotts submit the costs of three affidavits dated between 7 July 2016 and 30 August 2016 should not be included in Mr Vardas' costs claim. The first affidavit dated 7 July 2016 was affirmed in support of the Summons in the proceedings. It also outlines the steps taken to locate the Coshotts' address for service. The third affidavit exhibits correspondence between YPOL and the Coshotts and the costs assessor.
10. These affidavits were principally prepared for the purposes of obtaining an order for substituted service on the Coshotts of the Summons and the supporting affidavit. While the affidavits in question may not have been read, they were prepared for the specific and not unreasonable purpose as potential interlocutory tools to ensure that the Coshotts could be found and served. Incurring these costs was a wise precaution in the circumstances and they should be included in the indemnity costs orders being sought.

(2) Whether a gross sum costs order should be made against the Coshotts

1. The discretion to order a gross sum costs award is not confined and may be exercised when it is warranted in the circumstances: Harrison v Schipp (2002) 54 NSWLR 738 at 742 ([21] - [22]).
2. If a costs assessment were to be ordered in this case, it would mandate the assessment of the costs of a costs assessment. This, together with the nine years in delay in bringing the costs assessment application strongly infers the great potential for yet further protraction in these proceedings.
3. Mr Vardas' arguments in support of a gross sum costs order are persuasive. I agree with Mr Vardas' submission that because of the Coshotts' conduct in the proceedings and their refusal to withdraw the costs assessment application despite two invitations to do so on 24 May 2016 and 30 August 2016, an additional costs assessment process would probably be protracted. The Coshotts' submission in response, that their conduct to date has not shown a tendency to protract matters, is unconvincing. The costs assessment application in relation to the 2004 costs orders was made nine years after the Deed and the 2007 Orders. The history of these proceedings and the proceedings in which the 2004 costs orders were made suggest that there is a strong possibility of further protraction in a costs assessment, and then potential further enforcement issues should those costs as assessed not be paid.
4. The Coshotts will probably face difficulty in meeting the additional costs of any costs assessment should one now be ordered. The evidence was not comprehensive and the Coshotts did not provide complete details of their assets and liabilities. I infer from the withdrawal of the Coshotts' offer to tender evidence of a "substantial sum" of money being held in trust by their solicitors to cover a future costs assessment that they do not have or choose not to advance the funds to take such a reassuring course. I also infer from Mr Coshott's past bankruptcy that he presents some future solvency risk. The uncertainty of the Coshotts' financial position weighs in favour of making a gross sum costs order.
5. Moreover, on the basis of the Lusk affidavit I accept that the costs of a future costs assessment application may also be disproportionate to the costs recovered from the process.
6. The Lusk affidavit provides evidence regarding the rates of solicitors and counsel at the material times for the fees and disbursements incurred by Mr Vardas. I infer from this material and that Lawcover has agreed to provide professional indemnity insurance to Mr Vardas at those rates that they are reasonable and proportionate in the circumstances.
7. For these reasons the Court will make a lump sum costs order against the Coshotts for the fixed sum of $60,000, which is a fair discount on the amount which might otherwise assessed for costs in this case.

TheJurisdictional Point: the costs of the costs assessment

1. The Coshotts submitted this Court had no jurisdiction to make orders with regard to the costs assessor's costs.
2. The 1987 Act was repealed on 1 October 2005 and replaced with the Legal Profession Act 2004 (NSW) ("LPA"). The transitional provisions at LPA, Schedule 9, clause 18 provide that if a clients' instructions were first given prior to 1 October 2005, the 1987 Act is applicable. The Coshotts are correct in their submission that the 1987 Act applies to the proceedings in which the 2004 costs orders were made.
3. The 1987 Act, s 208F(4) provided: "(4) The costs assessed are to include the costs of the assessment (including the costs of the parties to the assessment, and the costs assessor). The costs assessor may determine by whom and to what extent the costs of the assessment are to be paid."
4. This power conferred upon the costs assessor is a discretionary power: see Acts Interpretation Act 1901 (Cth), s 33(2A).
5. Was the power conferred exclusive? The Coshotts submit the provisions of the LPA, s 369(2)-(2A), which the Coshotts referred to in their written submissions, provided qualifications in the following terms: "(2) A costs assessor is, subject to this section, to determine the costs of a costs assessment to which this section applies. (2A) Subject to any order of or the rules of the relevant court or tribunal, the costs assessor may determine by whom and to what extent the costs of an assessment referred to in section 364 (Assessment of costs - costs ordered by court or tribunal) are payable and include the determination in the certificate issued under this section in relation to the assessment."
6. LPA, s 369 (2A) was introduced into the legislation in 2006 and commenced on 2 June 2006.
7. The Legal Profession Uniform Law Application Act 2014 (NSW), s 78(1) introduced a somewhat different provision to deal with the power to determine the costs of a costs assessment, as follows: "Subject to any order or rules of the court or tribunal concerned, a costs assessor is to determine the costs of an assessment of ordered costs and by whom they are payable."
8. The Court has not been provided with any authority to support the defendants' submission that the costs assessor had exclusive power under the 1987 Act to make orders regarding the costs of the costs assessment and how this may interact with the Court's broad costs discretion in relation to costs in CPA, s 98 and the successive forms of the legislation governing the legal profession in this State.
9. But given the terms of Order 3 in the Court's first judgment it is not necessary for the Court to determine this issue. The costs of the costs assessment is fully covered by the Court-ordered indemnity. Moreover, the total costs of the costs assessment are marginal (at $1,600) compared to the substantial costs discount (from $79,267.61 down to $60,000) that Mr Vardas is already prepared to accept in the making of a gross sum costs order.

Conclusions and Orders

1. For the reasons given above, Mr Vardas is successful in his application for a gross sum costs order under CPA, s 98(4)(c) against the Coshotts and for an order for costs on the indemnity basis.
2. The Court therefore orders as follows: 1. Order the first and second defendants pay the plaintiff's costs in the proceedings on the indemnity basis. 2. Order that the first and second defendants pay the gross sum of $60,000 to the plaintiff instead of assessed costs. 3. Order the first and second defendants pay the gross sum for costs awarded in Order 2 within 28 days from the date of these orders. 4. Order the first and second defendants are jointly and severally liable to the plaintiff for the gross sum ordered in Order 2 above.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 19 April 2017