Wende v Horwath

C. THE PROPER DETERMINATION OF THE ASSESSED COSTS

1. As a consequence of the decision in Wende (No 2), the task of this Court is to determine the proper amount of costs that should have been made by the costs assessor in accordance with s 384(2)(a) of the Legal Profession Act 2004: see Wende (No 2) at [18] ‑ [30]. That involves a determination of the amount of assessed costs separately payable pursuant to the costs order of the Local Court, the costs order of the Supreme Court, and the costs order of the Court of Appeal. Two members of the Court of Appeal in Wende v Horwath (NSW) Pty Ltd [2014] NSWCA 170 ("Wende CA") recognised the possibility of ascertaining these amounts from the reasoning of the assessor: see Barrett JA at [201]; Beazley P at [11].
2. Horwath led evidence from Vanessa Vallejo to establish in respect of each item in its bill of costs whether the item was in respect of the Local Court proceedings, the Supreme Court proceedings or the Court of Appeal proceedings, and by how much it should be reduced in accordance with the assessor's reasons. There was no objection to the evidence, Ms Vallejo was not cross‑examined, and no contrary evidence was filed. Apart from two or three aspects to which I will come, there was no challenge to the conclusion of Ms Vallejo. Ms Vallejo concluded that the sum of $175,052.78 assessed by the costs assessor and the review panel should be divided into the following amounts: Local Court, $105,115.86; Supreme Court, $39,822.33; Court of Appeal, $30,114.59.
3. The first challenge to Ms Vallejo's conclusion was that she utilised the report of the assessor. I do not regard that as a defect; rather it seems to be the appropriate course. The Court of Appeal in Wende CA did not find any defect in the methodology employed by the assessor; the defect found was in the failure of the assessor (and the review panel) to go further and expressly determine the costs payable under (or apportion the costs between) the various costs orders by issuing a separate certificate in respect of each order. Further, s 384(2)(a), by referring to the determination that "should have been made by the costs assessor," indicates that those aspects of the assessment that are not challenged may be utilised together with the answer to the question or questions the subject of the appeal to formulate the appropriate determination.
4. The second challenge was that the evidence of Ms Vallejo was insufficient to enable the Court to make the appropriate determination under s 384(2)(a). The procedure adopted by Ms Vallejo in relation to professional costs was to determine on the basis of the assessor's "specific eliminations, reductions and adjustments" (see Wende CA at [201]) the amount allowed in respect of each item in the solicitor's bill of costs related to the Supreme Court and the Court of Appeal proceedings. This involved an analysis of 160 items related to the Supreme Court proceedings and 111 items in the bill of costs related to the Court of Appeal proceedings. The summation of all these adjusted (or "allowed") amounts was then deducted from the total amount of professional costs determined by the assessor to determine the amount of allowed costs in respect of the Local Court order.
5. The plaintiffs asserted that to be probative Ms Vallejo's evidence needed to include an item‑by‑item exercise in respect of each of the 528 items in the bill of costs related to the Local Court proceedings. I do not think this was necessary. At no stage during the assessment, the review by the review panel, the appeal to this Court or the application for judicial review in the Court of Appeal, was any challenge made on the basis that the amount determined by the assessor or the review panel did not reflect or correspond with the reasons of the assessor. Nor do the plaintiffs make that challenge before me, other than to refer (at paragraph 26(f) of the plaintiffs' written submissions) to the assumption of accuracy. That assumption is unsurprising in the absence of a submission that the figure adopted by the assessor does not accurately reflect her reasons.
6. Accordingly, the total amount determined by the assessor was not in dispute, at least so far as her reasons were accepted. It follows that if the adjustment made in respect of the items corresponding to the Supreme Court order and the Court of Appeal order were correct ‑ and any challenge to those amounts was expressly eschewed by the plaintiffs ‑ the residual amount must correspond to the amount allowed for the Local Court.
7. The plaintiffs submitted that some of the 528 items referrable to the Local Court order were not amendable to a precise reduction in accordance with the assessor's reasons. When pressed for an example, in closing submissions the plaintiffs nominated item 33 as being potentially but not necessarily subject to an adjustment because the assessor disallowed claims for "research" and "internal conferences". Since item 33 contained neither of these attributes, the basis for adjustment was non‑existent.
8. Another example was put forward after the reply submissions of Horwath. It was submitted that the italicised parenthetical comments in items 280, 283 and some related items left uncertain whether those items were covered by the fixed costs order referred to in item 284 and at paragraph 4.15 of the assessor's reasons. But the terms of the parenthetical comments, and the other evidence of the fixed costs order and other costs orders on that day, establish that these items referred to costs incurred which were reduced, because part of the time was attributable to the fixed costs order. There was no basis for the further adjustment, at least not by reason of the assessor's comments at paragraph 4.15 in respect of the fixed costs order.
9. Reference was also made in the plaintiffs' written submissions to item 4 and paragraph 4.34 of the assessor's reasons. This reference does not establish inaccuracy by the assessor. The item claiming seven units costing $224 was reduced to six units at $180, adopting a reduced charge‑out rate (see paragraph 4.24 of the assessor's reasons). The reference to "considering next steps" in paragraph 4.34 is presumably a reference to these same words at the end of item 4.
10. The plaintiffs' examples thus did not establish the uncertainty alleged. In any event, any uncertainty in respect of a particular item unconnected with the Supreme Court or the Court of Appeal would have no impact on the rationality of adopting the residue of the costs allowed by the assessor as the Local Court costs.
11. Accordingly, in my view, the approach adopted by Ms Vallejo is appropriate. The professional costs should be determined in accordance with the figures she determined.
12. The only other matter of potential dispute, although it was not raised by the plaintiffs, concerns the cost of assessment in the amount of $8,927.50. This disbursement related to costs pertaining to each of the costs orders and must be divided between them. Although Ms Vallejo divided these costs evenly between the three costs orders, I am of the view that an even division is not appropriate. A more appropriate division was to divide these costs approximately in accordance with the number of items of the bill corresponding to each of the three proceedings, namely five‑eighths to the Local Court, one‑quarter to the Supreme Court and one‑eighth to the Court of Appeal. This adjustment results in $2,063.84 being added to the Local Court costs determined by Ms Vallejo, $743.95 being deducted from her Supreme Court costs figure and $1,859.89 being deducted from her Court of Appeal costs.
13. That results in the amount of costs found by the review panel and the assessor in the sum of $175,052.78 being apportioned between the three sets of proceedings as follows: Local Court, $107,719.70; Supreme Court, $39,078.38 and Court of Appeal, $28,254.70.
14. I note that in respect of the Supreme Court costs the first plaintiff, Mr Wende, obtained a grant of Legal Aid and is not therefore liable for those costs, and that the Legal Aid Commission has paid the sum of $15,000 in respect of those costs: see, generally, Wende CA at [212]-[234]; see also at [1], [92].

D. THE APPLICATION FOR A LUMP SUM COSTS ORDER

1. Section 98(4) of the Civil Procedure Act 2005 grants to the Court a discretion as to whether to award a gross sum rather than the assessed costs. That discretion is informed by whether the assessment of costs would be protracted and expensive, and whether the party obliged to pay the costs would not be able to meet the liability: Harrison v Schipp (2002) 54 NSWLR 738 at [21], Hamod v State of New South Wales and Anor [2011] NSWCA 375 at [813]. There is no evidence of the latter concern. The plaintiffs accepted that the assessment exercise would likely, though not certainly, involve delay, although they disputed that it would be expensive. There was unchallenged evidence before the Court that the cost of an assessment of the amount of costs up to the judgment in this Court on 23 October 2014 would be $10,800.
2. Other considerations relevant to the award of a gross sum order mentioned in Hamod at [816] include "the relative responsibility of the parties for the costs incurred" (which I take to mean that an applicant for a gross sum order is more likely to succeed if the costs order is in favour of the applicant) and the "the degree of any disproportion between the issue litigated and the costs claimed [and] the complexity of proceedings in relation to their cost".
3. This last quotation indicates that it may be a matter in favour of a gross sum order if the costs are large in relation to the principal sum in dispute, and if it is "desirable to avoid the expense, delay and aggravation likely to be involved in contested costs assessment": Hamod at [817]. Both these considerations have application here. Their relevance is magnified by the circumstance that these costs arise from a contested assessment process. Statements emphasising the undesirability of "satellite litigation" or "parasitic litigation" (see Vumbaca v Sultana (No. 2) [2013] NSWDC 195 at [7]) apply more strongly when there is a prospect of litigation arising from a dispute involving litigation which is already a satellite: see, for example, In the matter of Palladium Consulting Pty Limited [2013] NSWSC 92 at [14] and Bobb v Wombat Securities Pty Ltd & Ors (No 2) [2013] NSWSC 863 at [8]. Circumstance of a relatively modest amount of costs being claimed is also a matter that may operate in favour of a gross sum order: Palladium at [14].
4. In these circumstances, and particularly because of the past disputes over costs assessments, I am persuaded that this is an appropriate case for a gross sum costs order.
5. The discretion to order a gross sum must of course be exercised judicially, and the approach taken to estimate costs should be fair, logical and reasonable: Hamod at [815]. Horwath led evidence from Valerie Higinbotham, an expert costs consultant, whose expertise was not disputed by the plaintiffs. Ms Higinbotham was not cross‑examined and no contrary evidence was lead. Her report disclosed a reasoned process to determine the costs likely to be recovered on assessment. In the result, she reduced the hourly rate for solicitors' costs incurred in the pre‑Court of Appeal District Court proceedings by 10%, and then applied a further discount of 35% to those costs. In respect of the smaller amount of post‑Court of Appeal solicitors' costs in the District Court, she reduced those costs by 30%. Counsels' fees were reduced by 10%, disbursements by more than 50%. The amount of costs allowed was $73,184.66, which represents about 74% of the $98,651.08 costs that were incurred.
6. After further reducing the pre‑Court of Appeal costs by 20% in accordance with Wende (No 2) at [55] (and order 2) the sum of gross sum costs sought was $64,496.70.
7. In Palladium at [14], Black J allowed two‑thirds of the solicitor/client costs and wholly allowed counsels' fees and disbursements in determining a lump sum which equated to 84.5% of the costs incurred. While this number may not be a guide as to the appropriate percentage, it might indicate that the amount claimed by Horwath in these proceedings is modest and reasonable compared to the costs incurred.
8. The plaintiffs disputed Ms Higinbotham's analysis on the basis that there was no consideration of the particular circumstances of the case because Ms Higinbotham did not have access to the defendant's solicitors' file or see the work product of the invoices. But the determination of a gross sum amount does not require a detailed examination of the costs equivalent to what might be examined on an assessment, and may involve the application of "a much broader brush": Harrison at [22].
9. The use of expert evidence was endorsed in Tim Barr Pty Ltd & Anor v Narui Gold Coast Pty Ltd [2011] NSWSC 11 at [12] quoting Idoport Pty Ltd v National Australia Bank Ltd [2005] NSWSC 1273 at [9]: see, also, Filmlock Pty Limited v Nissi Investments Pty Limited (No 3) [2013] NSWSC 1594 at [7]. In the result, I do not propose to further discount the amount calculated by Ms Higinbotham on the basis of her failure to conduct a detailed review of the whole of the solicitors' file.
10. The plaintiffs also challenged the inclusion of the fees of the cost assessor. Although Ms Higinbotham gave an opinion about the time and expense of an assessment, those expenses, including the fees of an assessor, were not included in the calculation of the amount of the appropriate gross sum. Accordingly, that challenge is without foundation.
11. During the course of the hearing, Horwath also sought an additional amount in respect of the costs in relation to the applications determined today, in the event that Horwath was otherwise successful. As Horwath has been successful in its application, it should have the costs to date. However, the evidence did not deal with the costs incurred since 23 October 2014. Apart from the hearing today, there had been two other occasions when the matter came before the Court with the parties represented by counsel. One of those occasions involved contested argument. There was also work that resulted in orders being made in chambers on two other occasions.
12. Horwath's counsel gave an indication of the costs in the period 23 October 2014 to today from the bar table without objection from the plaintiffs, although the value of that evidence, if such it be, was challenged. The indication was to the effect that in this period counsels' fees were $13,406.50, solicitors' costs were $12,750; and disbursements were $4,078.50 (largely in respect of Ms Higinbotham). Horwath submitted that these amounts should be discounted by 10% for counsels' fees and 40% for solicitors' fees and disbursements, reducing the fees from $30,235 to $22,132.95.
13. I have taken into account a comparison of the complexity of the matters involved up to the time of the 23 October 2014 judgment, compared to the matters dealt with by the Court up to and including today.
14. Whilst the amount advanced by Horwath may be logical and reasonable, I have some doubt as to whether it is fair to raise it during submissions and without affidavit evidence. The plaintiffs have not had a reasonable opportunity to deal with it, and it is not supported directly by expert evidence, although the percentage reductions submitted were largely in accordance with, or exceed those applied by Ms Higinbotham in respect of the earlier fees about which she gave evidence.
15. I note that there was evidence that the costs of the assessment which would be saved by a gross sum order were $10,800. The application before me concerned both this matter and also the determinations of the costs under s 384 of the Legal Profession Act 2004, and, in my view, those two issues each consumed about half the time. I am not inclined to award a greater sum in respect of half of the application than the amount estimated for the assessment, and thus not more than $21,600 for the costs of the application.
16. On the other hand, I am persuaded, for the reasons earlier indicated, that it would not be in the interests of justice to return any part of the costs of the matter for a full assessment. I am also not in favour of engaging in a further hearing about the costs incurred since the judgment in October 2014, with the resultant cost, and with the possibility that with each further hearing there are more costs and potentially further hearings and evidence. I also take into account the passage in Hamod at [820] which noted that the calculation of a gross sum order "may involve an impressionistic discount of the costs actually incurred or estimated" (my underlining).
17. In my view, the appropriate course is to allow the sum of $20,000, which discounts those fees incurred by slightly in excess of one‑third, in view of the absence of direct evidence supporting them. In addition, I propose to postpone entry of the orders for two weeks in case the plaintiffs seek to put on further material in respect of those claimed costs for the period after 23 October 2014. The plaintiffs also indicated during the hearing the possibility of a stay application, and a two week stay of entry of my orders will facilitate an orderly consideration by them of whether such an application should be made.
18. Accordingly, the orders of the Court are: 1. Determine the costs payable pursuant to s 384(2)(a) of the Legal Profession Act 2004: 1. under the Local Court order to be $107,719.70; 2. under the Supreme Court order to be $39,078.38; and 3. under the Court of Appeal order to be $28,254.70. 1. In order to give effect to order (1) above, order the plaintiffs to pay to the defendant the amounts of costs determined in order (1)(a), (b) and (c) above. 2. Note that the first plaintiff, Herbert Wende, was granted Legal Aid in respect of the costs of the Supreme Court proceedings and bears no further liability in respect of the costs specified in order (1)(b) above. 3. Note that the Legal Aid Commissioner has paid the sum of $15,000 in partial discharge of the costs specified in order (1)(b) above. 4. Plaintiffs to pay the defendant's costs in the proceedings from 23 October 2014 until today. 5. Order that the defendant be entitled to a specified gross sum in respect of: 1. the costs the subject of orders (1) and (2) made on 23 October 2014; and 2. the costs referred to in order (5) above. 1. Determine that the specified gross sum referred to in order (6) be the total sum of $84,496.70, representing $64,496.70 in respect of order (6)(a) and $20,000 in respect of order (6)(b). 2. Stay the entry of these orders for 14 days. 3. Grant liberty to the plaintiffs to make any application in respect of the $20,000 referred to in order (7) within 14 days hereof.

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: 20 May 2015