Webster v Super Smart Strategies Pty Ltd

Supreme Court of NSW|2017-07-12|Before: Adamson J

Solicitors McCabes Lawyers (1st Cross-Defendant) Gilchrist Connell (2nd and 4th - 113th Cross- Defendants) Meridian Lawyers (3rd Cross-Defendant) File Number(s): 2013/78666

Introduction

On 26 April 2017 I ordered default judgment in favour of the plaintiffs (the Websters) in the sum of $1,545,428.32 against the second defendant, Rick Manietta and in the sum of $1,279,928.32 against the third defendant, Rick Manietta Investments Pty Ltd, with costs. Judgment was not sought against the first defendant, Super Smart Strategies Pty Ltd (Super Smart), as it had been wound up on 19 April 2017 and the Websters proposed to lodge a proof of debt with the liquidator. Super Smart became known as ACN 098 688 085 Pty Ltd (in liq) upon its winding up.
On 4 May 2017 I dismissed the cross-claim brought by the three defendants (Super Smart, Mr Manietta and Rick Manietta Investments Pty Ltd) against the second and fourth to 113th cross-defendants (HWL Ebsworth) and the third cross-defendant, ABCD Pty Ltd (ABCD) and made costs orders against the cross-claimants.
The orders referred to above are set out in my reasons: Webster v Super Smart Strategies Pty Ltd [2017] NSWSC 531. My orders also included the grant of leave to HWL Ebsworth and ABCD to make an application for a gross sum costs order pursuant to s 98(4)(c) of the Civil Procedure Act 2005 (NSW): [96(2)(d)] and [96(3)(c) of the reasons].

Application by HWL Ebsworth

In support of its application for a gross sum costs order in the sum of $140,991.30, HWL Ebsworth relied on the affidavit of Lisa Schumacher sworn 8 June 2017 (together with its exhibit, LAS-1) as to substantive matters and the affidavit of Ms Schumacher sworn 19 June 2017 (as to service). Ms Schumacher, a solicitor employed by Gilchrist Connell, has had day to day conduct of the proceedings on behalf of HWL Ebsworth, subject to the supervision of the partner, Mr Haslam. On the basis of this evidence I am satisfied of the following.
Each of the cross-claimants has been served with the affidavit of Ms Schumacher sworn 8 June 2017. In the covering letters of service, HWL Ebsworth's solicitors included the following paragraph: "We will shortly send a copy of the Affidavit [of Lisa Schumacher sworn 8 June 2017 together with LAS-1 to that Affidavit] to Adamson J, along with an application for a gross sum costs order. If you wish to be heard on that application, please contact us urgently."
As at 19 June 2017 HWL Ebsworth had received no response to the service. On the basis of this lack of response and in the absence of any communication with my Associate to date by any of the cross-claimants, I am satisfied that none of the cross-claimants wishes to be heard on HWL Ebsworth's application for a gross sum costs order.
I am also satisfied that the notice of the cross-claimants has been brought to the submissions of Mr Lloyd of counsel dated 4 July 2017 in support of the application for a gross sum costs order as the submissions were sent to the email address for Mr Manietta.
As at 4 May 2017 Gilchrist Connell had rendered invoices that totalled $165,872.10 (excluding GST), which comprised professional costs and disbursements incurred in defence of the cross-claim brought against HWL Ebsworth in these proceedings. The hourly rates for professional costs were, in respect of Mr Haslam, $370-$390. The hourly rates in respect of Ms Schumacher were $320-$330. Other employed solicitors who assisted had charge-out rates of $270-$320. These rates applied to work undertaken by Gilchrist Connell for Lawcover Insurance Pty Ltd (Lawcover), HWL Ebsworth's primary insurer.
Each invoice contained a detailed description of each task for which a fee has been charged, the time spent on the task and the relevant hourly rate of the person who performed that task.
Ms Schumacher's unchallenged opinion was that the rates charged by Gilchrist Connell were reasonable compared with the market rates of other comparable firms of solicitors. She estimated that it would cost HWL Ebsworth about $12,000 (excluding GST) to have the costs assessed. Her unchallenged opinion was that, in her experience, when the costs of clients who have engaged Gilchrist Connell at Lawcover rates are assessed, approximately 85% of those costs have been allowed. This percentage is the basis for the figure of $140,991.30 sought by HWL Ebsworth.

Application by ABCD

In support of its application for a gross sum costs order in the sum of $215,000, ABCD relied on the affidavit of Catherine Osborne sworn 30 May 2017 (together with its exhibit, CMO-1) as to substantive matters and the affidavit of Ms Osborne sworn 16 June 2017 (as to service). Ms Osborne, a solicitor engaged as a consultant by Meridian Lawyers, has been the solicitor on the record on behalf of ABCD since it was joined to the proceedings as a cross-defendant in about December 2013. She was formerly a partner at Wotton & Kearney Lawyers and Curwoods Lawyers during this period. On the basis of this evidence I am satisfied of the following.
Each of the cross-claimants has been served with the affidavit of Ms Osborne sworn 30 May 2017. In the covering letters of service dated 1 June 2017, ABCD's solicitors included the following: "Our client is seeking a gross sum costs order in the amount of $215,000. We enclose, by way of service, the Affidavit of Catherine Osborne sworn 30 May 2017. A copy of Exhibit CMO1 to that Affidavit has been sent to the registered office of Rick Manietta Investments Pty Limited and ACN 098 688 085 Pty Limited at St Leonards. We are in the process of sending a copy of this Affidavit to Adamson J. If you wish to be heard on this issue, please contact us urgently."
As at 16 June 2017 ABCD had received no response to the service. On the basis of this lack of response and in the absence of any communication with my Associate to date by any of the cross-claimants, I am satisfied that none of the cross-claimants wishes to be heard on ABCD's application for a gross sum costs order.
Ms Osborne's hourly rate throughout this period of $390 has remained the same for work conducted for Lawcover and its insured. As at 30 May 2017 the invoices rendered to ABCD totalled $253,324.64 (excluding GST), which comprised professional costs and disbursements incurred in defence of the cross-claim brought against ABCD in these proceedings.
Each invoice contained a detailed description of each task for which a fee has been charged, the units of time spent on each task and the hourly rate.
Ms Osborne's unchallenged opinion was that, in her experience, when the costs of clients who have engaged Meridian Lawyers at Lawcover rates are assessed, usually at least 85% of those costs have been allowed on a party/party assessment. This percentage is the basis for the figure of $215,000 (rounded down from $215,325.94) sought by ABCD.

Consideration

The relevant principles that apply to the consideration whether it is appropriate to make a gross sum costs order were set out by Giles JA in Harrison v Schipp (2002) 54 NSWLR 738; [2002] NSWCA 213 (which applied to the statutory predecessor to s 98(4)) in the following terms: "[21] 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). [22] Of its nature, specification of a gross sum is not the result of a process oftaxation or assessment of costs. As was said in Beach Petroleum NL v Johnson (at 124), the gross sum "can only be fixed broadly having regard to the information before the Court"; in Hadid v Lenfest Communications Inc (at [35]) it was said that the evidence enabled fixing a gross sum "only if I apply amuch broader brush than would be applied on taxation, but that … is what therule contemplates". The approach taken to estimate costs must be logical, fairand reasonable (Beach Petroleum NL v Johnson (at 123); Hadid v LenfestCommunications Inc (at [27])). The power should only be exercised when theCourt considers that it can do so fairly between the parties, and that includessufficient confidence in arriving at an appropriate sum on the materialsavailable (Wentworth v Wentworth (Court of Appeal, 21 February 1996, unreported) per Clarke JA)."
The Court of Appeal (Beazley P, Meagher and Payne JJA) has recently re-affirmed the correctness of this approach in the context of an application under s 98(4) of the Civil Procedure Act in Bechara (t/as Bechara and Co) v Bates [2016] NSWCA 294 in the following passage: "[12] The power to award a lump-sum should only be exercised when the Court considers that it can do so fairly between the parties and where an appropriate sum can be determined from the available materials: Harrison v Schipp (2002) 54 NSWLR 738 ; [2002] NSWCA 213 at 742-723 [21]-[22]; Beach Petroleum NL v Johnson (No 2)(1995) 57 FCR 119 at 123. [13] 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: Hamod v New South Wales [2011] NSWCA 375 at [818] per Beazley JA (Giles and Whealy JJA agreeing). [14] A "broad brush" approach is appropriate. To require the same or similar level of detail as in a formal costs assessment would defeat the purpose of the lump sum order: Auspine Ltd v Australian Newsprint Mills Ltd (1999) 93 FCR 1; [1999] FCA 673 at 5 [16]; Penson v Titan National Pty Ltd (No 3) [2015] NSWCA 121 at [7]. [15] The courts have typically applied a discount in assessing costs on a gross sum basis: Hamod v New South Wales at [814]. . . . [18] The Court is satisfied that the total costs of this litigation will become even more disproportionate if the costs are referred for assessment and a lump-sum costs order is not made. The reasoning in Hamod v New South Wales at [816]-[817] is apposite."
I am satisfied that the detail in the invoices themselves as well as the opinions and estimates expressed by Ms Schumacher and Ms Osborne in their affidavits provide sufficient material to determine an appropriate sum. Although the discount of 15% is relatively modest, the hourly rates charged reflected a sum which appears to have been already discounted as a result of an agreement between Lawcover and the solicitors engaged to do its work. I have perused the invoices of counsel and consider the sums invoiced to be reasonable. For the reasons given in Webster v Super Smart Strategies Pty Ltd [2017] NSWSC 531, I am satisfied that the cross-claimants unnecessarily contributed to the costs of the proceedings by filing cross-claims which they decided ultimately not to pursue.
The liquidation of Super Smart and the conduct of Mr Manietta and Rick Manietta Investments Pty Ltd (referred to in my reasons published on 4 May 2017) provide the basis for an inference that it is unlikely that the judgment sums in favour of the Websters and the plaintiffs in associated proceedings (2016/264867) will be paid in full. In these circumstances, it would be unjust to require the cross-defendants to spend further money on a costs assessment.
It is also of significance that the cross-claimants have not sought to be heard against the applications for gross sum costs orders. In all the circumstances I am persuaded that it is appropriate to make gross sum costs orders as sought. As I am to take a "broad-brush" approach, I have rounded down the amount sought by HWL Ebsworth to the nearest thousand dollars.
I am satisfied that it is appropriate that the costs of these applications for gross sum costs orders ought follow the event.

Orders

I make the following orders: 1. In respect of the costs payable pursuant to order (2)(d) of the orders made on 4 May 2017, order the cross-claimants, pursuant to s 98(4) of the Civil Procedure Act 2005 (NSW), to pay to the second and fourth to 113th cross-defendants the amount of $140,000 within 28 days of the date of this order. 2. Order the cross-claimants to pay the second and fourth to 113th cross-defendants' costs of their application for a gross sum costs order. 3. In respect of the costs payable pursuant to order (3)(c) of the orders made on 4 May 2017, order the cross-claimants, pursuant to s 98(4) of the Civil Procedure Act 2005 (NSW), to pay to the third cross-defendant the amount of $215,000 within 28 days of the date of this order. 4. Order the cross-claimants to pay the third cross-defendant's costs of its application for a gross sum costs order.

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: 13 July 2017

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