Zepinic v Chateau Constructions

Court of Appeal (NSW)|2014-04-03|Before: Basten JA, Gleeson JA, Leeming JA, McColl JA, Tobias JA

Judgment 1THE COURT: On 18 February 2014, this Court dismissed an application by Dr Zepinic to review a judgment of McColl JA and ordered the applicant, who did not appear and whose application for an adjournment was refused, to pay the costs of the respondent ("Chateau Constructions"): Zepinic v Chateau Constructions (Aust) Ltd [2014] NSWCA 27, order (3). 2Chateau Constructions now seeks to vary order (3) by a suite of special costs orders. 3The litigation in this Court is alarming. This is the fourth judgment in the last year which has been concerned with nothing other than costs. In the exuberant pursuit of their claims as to costs, both parties have made applications which have been held to be misconceived. Aspects of this application conform to the pattern. 4The proceedings arise out of a long-running dispute between the parties, originating with a contract by which the respondent agreed to build a house in Turramurra for Dr and Ms Zepinic ("the Zepinics"). There have been proceedings in the (former) Consumer, Trader and Tenancy Tribunal, the District Court and the Supreme Court, whose details are presently immaterial. On 10 May 2010, Tobias JA dismissed a summons filed by the Zepinics seeking leave to appeal, and ordered them to pay Chateau Constructions' costs. 5More than three years later, Chateau Constructions applied to vary those orders, seeking both a gross sum costs order and interest on costs paid. The Zepinics did not appear. There was an issue as to whether the Zepinics had been properly served with the motion. When that was brought to Chateau Constructions' attention, it elected to proceed only against Dr Zepinic. On 1 July 2013, in Zepinic v Chateau Constructions (Australia) Ltd [2013] NSWCA 214, McColl JA held: "The forwarding under cover of the letters referred to in Mr Loel's affidavit of the original notice of motion and the amended notice of motion to the Little Thames Walk address should be taken to constitute sufficient service for the purpose of the amended notice of motion." 6On 18 July 2013 her Honour dismissed the application by Chateau Constructions seeking a gross sum costs order and an order for interest on costs the subject of the costs order made in 10 May 2010: Zepinic v Chateau Constructions (Australia) Ltd (No 2) [2013] NSWCA 227. At least in relation to the claim for interest, McColl JA regarded the application as incompetent. That conclusion has been doubted in Short v Crawley (No 45) [2013] NSWSC 1541, but it is not necessary for us to express a view because Chateau Constructions did not seek to review McColl JA's decision. 7Dr Zepinic sought to review McColl JA's finding made on 1 July 2013 that service had been properly effected. That finding was capable of challenge by an application for review, if Chateau Constructions' belated motion to vary the 2010 costs order in its favour had succeeded. It was, however, refused and the finding as to service self-evidently had no continuing operation. 8However, Dr Zepinic (who at all relevant times has been unrepresented) had filed a notice of motion on 9 July 2013 seeking these substantive orders: "1. Appeal allowed. 2. The court bellow erred in law delivering a judgement breaching CL210.175 of NSW Supreme Court Practice and Procedure, Part 11A of UCPR 2005, as well as 14. Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil and Commercial Matters [sic]." 9That motion was patently misconceived. By amended notice of motion filed 6 August 2013, Dr Zepinic expanded his challenge to other orders of the District Court and the Supreme Court, as summarised in our earlier reasons. 10That was the motion we dismissed on 18 February 2014 We did so because even if, which we doubted, there was a "order" or "judgment" made by her Honour on 1 July 2013 capable of sustaining a review under s 46(4) of the Supreme Court Act 1970 (NSW), nothing her Honour determined had any continuing impact. By 18 July 2013, her Honour had dismissed the only notice of motion to which the order of 1 July 2013 applied. Further, in relation to the balance of Dr Zepinic's amended notice of motion, it was not possible by motion filed in the 2010 proceedings in the Court of Appeal for Dr Zepinic to challenge a raft of other orders of the District Court and the Supreme Court. 11Counsel for Chateau Constructions flagged on that occasion that a special costs order would be sought, and in accordance with Uniform Civil Procedure Rules 2005 (NSW) ("UCPR"), r 36.16 applied to vary the costs orders made in its favour. By its most recent motion filed 3 March 2014 Chateau Constructions seeks: (a) an order for costs on an indemnity basis, (b) a gross sum costs order pursuant to s 98(4)(c) of the Civil Procedure Act 2005 (NSW) and (c) an order for interest on those costs and disbursements pursuant to s 101(4) of the Act. Chateau Constructions filed an affidavit sworn by Mr Andrew Loel on 3 March 2014 of 29 pages plus an exhibit, and some 30 paragraphs of submissions over nine pages in support. No submissions were received from Dr Zepinic, despite directions being made permitting him to respond.

Indemnity costs 12Chateau Constructions propounds three bases for an order for indemnity costs in its favour. 13First, Chateau Constructions correctly points out that Dr Zepinic's amended notice of motion was misconceived. That was something which could, and should, have been pointed out clearly to Dr Zepinic shortly after his motion was filed. So far as appears from the material available to the Court, Chateau Constructions did not do so. 14It was also open to Chateau Constructions to apply for the motion to be dismissed summarily. This it did not do. Instead, by letter dated 4 October 2013, Chateau Constructions' solicitor wrote: "You have not articulated a proper basis for the relief sought by your amended notice of motion. In the circumstances, it is likely that the Court will dismiss your amended notice of motion." 15We do not think that an unrepresented litigant advancing a case, even if it is misconceived, ought necessarily to bear an indemnity costs order for proceedings in circumstances where his legally represented opponent never squarely advised of that fact nor the reasons for it. Although it may be frustrating for a party to have to deal with an unrepresented litigant, Chateau Constructions and its lawyers remained under a duty to assist this Court to facilitate the just, quick and cheap resolution of the real issues: Civil Procedure Act, s 56(3) and (4). Had Mr Loel's letter of 4 October 2013 explained why the amended notice of motion was misconceived, that would have weighed in favour of an order for indemnity costs. 16Secondly, Chateau Constructions relies upon an offer contained in the same letter, made in accordance with UCPR, r 20.26. The offer was in these terms: "In an attempt to avoid you and Chateau incurring further unnecessary costs and to avoid wasting the Court's time and other resources, Chateau offers to resolve your amended notice of motion by consenting to its dismissal by the Court (the 'Offer of Compromise')." 17Although r 20.26 (in the form it takes after amendments effected in June 2013) is expressed in terms of claims and judgment in favour of the defendant, it applies to Dr Zepinic's amended notice of motion in the 2010 proceedings in this Court: UCPR, rr 51.1(4) and 51.47. The letter satisfied the requirements of r 20.26, and so, unless the Court orders otherwise, the regime in r 42.15A applies, and Chateau Constructions is entitled to indemnity costs from 5 October 2013. 18However, for the reasons given below in relation to the "Alternative Offer", this is a case where the Court should otherwise order. 19Thirdly, the letter contained a further offer in these terms: "As an alternative and separate offer, Chateau offers to resolve your amended notice of motion on the following basis: (a) your amended notice of motion is dismissed; and (b) you and Chateau each bear your own costs of your amended notice of motion (the 'Alternative Offer')." 20That offer was stated to remain open for acceptance until 8 November 2013. There was said to be a real element of compromise involved, because Chateau Constructions was foregoing its entitlement to costs, although the letter contained no indication of what Chateau Constructions' costs to date had been. The letter said that Chateau Constructions would rely on the principles in Calderbank v Calderbank [1975] 3 All ER 333 in relation to both the Offer of Compromise and the Alternative Offer. 21The affidavit of Mr Loel asserts that Chateau Constructions had incurred $5801.50 of costs on Dr Zepinic's motion by 4 October 2013. (That amount and others in these reasons are exclusive of GST unless the contrary is indicated. Although the Court proceeds on the basis that GST would have been charged, it is convenient having regard to the way in which the billing records are presented to follow the approach taken in the affidavit and submissions and refer to amounts exclusive of GST.) The exhibit to that affidavit contains invoices recording charges for work performed by Mr Loel between 12 July and 7 August 2013 of $2606.25. Those charges include items not clearly relating to the motion (for example, $487.50 described as "Perusing further case law re McColl decision 18/07/13 & considering issues arising"). They also include items which do clearly relate to the notice of motion, including the largest, which refers to a hearing before the Registrar on 15 July 2013 and "preparation re application to dismiss Zepinic notice of motion & application for indemnity costs". 22However, so far as the materials in evidence disclose, Dr Zepinic was never told that his motion was hopeless, because the "order" he sought to challenge lacked any operative force. 23For the period between 8 August and 4 October 2013, Mr Loel had to deal with Dr Zepinic's amended notice of motion. The largest items of costs in that period involved research into topics far removed from the reasons which made his motion misconceived: fraud and perjury. Thus there are entries: "Perusing V Zepinic amended notice of motion filed 06/08/13 & Affidavit sworn 01/08/2013; Reviewing files (CTTT, District Court & Supreme Court) to check for letter at Annexure 2 to VZ affidavit - manufactured/fraudulent?" and "Perusing Email & Attachments (x3) from L Aalders re VZ manufacturing evidence; noting further irregularities between genuine letter 08/09/2009 & manufactured letter 08/09/2009; Further reviewing files (CTTT, District Court & Supreme Court) to check for other correspondence from Zepinics circa 09/2009; Considering issues arising; Instructions to P Chapman re VZ perjury/false statement by affidavit (95 mins but charge 75 mins)" which were billed at $487.50 and $562.50. 24Once again, so far as the materials in evidence disclose, Chateau Constructions did not write to Dr Zepinic to say that to the extent that his amended motion now sought to challenge orders of other courts, some made many years before, it was doomed to fail. 25Perhaps unusually, the materials provided by Chateau Constructions in support of its gross sum costs order have permitted a close examination of the costs truly incurred which relate to the amended notice of motion in the period prior to the Offer of Compromise and the Alternative Offer. Three of the items mentioned above were either unrelated to it, or at best marginally related to it. The actual recoverable costs incurred by Chateau Constructions prior to 4 October 2013 occasioned by Dr Zepinic's motion and amended motion are small. 26Three facts dissuade us from exercising the discretion to order costs on an indemnity basis against Dr Zepinic based on the Calderbank offer. The first is that Chateau Constructions was dealing with an unrepresented litigant, but never squarely and succinctly told him why his motion and amended motion were doomed to fail. Secondly, there was very little element of compromise in the offers made on 4 October 2014; Chateau Constructions was foregoing a small, and unspecified, entitlement to costs. Thirdly, all of the proceedings were brought about by Chateau Constructions' application, held to be incompetent, to vary a costs order made more than three years previously. 27The same three considerations cause us to conclude that the default regime in r 42.15A should not apply. Accordingly, insofar as Chateau Constructions' motion seeks indemnity costs, we dismiss it.

Gross sum costs order 28Section 98(4) of the Civil Procedure Act authorises the Court to make an order to the effect that the party to whom costs are to be paid is to be entitled to "a specified gross sum instead of assessed costs". The principles relevant to the exercise of the Court's discretion were stated by Beazley JA in Hamod v State of New South Wales [2011] NSWCA 375 at [813]-[820]. Beazley JA said at [816] that factors which merit particular consideration included the relative responsibility of the parties for the costs incurred, the degree of any disproportion between the issue litigated and the costs claimed, the complexity of proceedings in relation to their cost, and the capacity of the unsuccessful party to satisfy any costs liability. Her Honour said at [819]: "The assessment of any lump sum to be awarded must represent a review of the successful party's costs by reference to the pleadings and complexity of the issues raised on the pleadings; the interlocutory processes; the preparation for final hearing and the final hearing: Smoothpool v Pickering [2001] SASC 131. In the exercise of its discretion the court is not required to undertake a detailed examination of the kind that would be appropriate to taxation or formal costs assessment: Harrison v Schipp at 743; Hadid v Lenfest Communications Inc at [35]; Auspine Ltd v Australian Newsprint Mills Ltd [1999] FCA 673; (1999) 93 FCR 1 at 5." 29This is a clear case where the assessment of costs would be protracted and relatively expensive, having regard to what was at stake: Harrison v Schipp [2002] NSWCA 213; 54 NSWLR 738 at [21]-[22]. The evidence provides an ample basis for such an order in the present case. There has been a lengthy and unfortunate history of disputation in the costs assessment process in many proceedings between the parties over some seven proceedings in the Consumer, Trader and Tenancy Tribunal, the District Court, the Supreme Court and the Court of Appeal over the last seven years. It is not necessary for present purposes to do more than refer to the unchallenged evidence (affidavit of Mr Loel at [44]) that in all likelihood Dr Zepinic will act for himself, deny that he has been served, will make scandalous allegations against Chateau Constructions and its solicitors, causing the costs assessor and the solicitors to perform substantially more work than would normally be required, in turn causing further cost and delay. That evidence provides good reason to avoid the "expense, delay and aggravation" arising out of the process of quantifying the entitlement to costs: Beach Petroleum NL v Johnson (1995) 57 FCR 119 at 120. 30The evidence is that Chateau Constructions has been invoiced, and has paid, costs said to be $34,744.34 excluding GST, being costs of and incidental to Dr Zepinic's motion, and will be billed a further $6263. Counsel's fees have been $8437 (including $975 attributable to the application for special costs orders); they essentially comprise two short hearings before the registrar, conferences with Mr Loel, drafting submissions, and an appearance on 18 February 2014. 31There is no evidence as to the probable treatment of the various tax invoices by a costs assessor. Bearing in mind that a broad brush approach is required, especially given the relatively small size of the costs involved, we are of the view that junior counsel's fees are not unreasonable (his rates are not excessive, it was always going to be appropriate for counsel to be briefed to appear, and it was sensible and efficient for counsel to draft and settle written submissions). However, the costs incurred by Mr Loel over six months during which the basic point that Dr Zepinic's motion was misconceived was never articulated are disproportionately high. The fact of the matter is that the point was neither large nor complex. It could and should have been resolved promptly by summary dismissal, having first articulated the basis for dismissal in correspondence to Dr Zepinic. 32What of the costs of the application for special costs orders? Between 19 and 27 February 2014, Mr Loel charged $7725, while counsel charged $975 to settle two versions of the affidavit. Mr Loel says that there are additional unbilled costs of $6263; it is to be presumed that these relate to the application for costs. The costs of Chateau Constructions' latest application for costs are therefore $14,963. This is a disproportionately large amount of costs to incur on an application whose only purpose is to improve the ordinary costs order obtained on 18 February 2014, when the actual costs incurred were some $26,000. 33It is one of the alarming aspects of these proceedings. Costs should be proportionate to the importance and complexity of the subject-matter in dispute: Civil Procedure Act, s 60. Gleeson JA has said that "the entitlement of parties to justice is not unconditional and must have regard to a number of factors, including the proportionality of the costs involved to the amount in dispute": Council of the City of Botany Bay v Michos [2013] NSWCA 244 at [31]. That truism is particularly apposite to Chateau Constructions' applications to this Court in 2013 and 2014 to improve its costs position. 34The costs of Chateau Constructions application for costs are addressed separately at the end of these reasons. 35Excluding the costs of the present application, the evidence discloses that Chateau Constructions has incurred and paid $26,044.84. Even that amount is large, in a matter where the costs should have been small. There was no substantial complexity. There could and should have been attempts made to deal with it more expeditiously. Further, we have the sense that much of the time spent was not necessary for the efficient prosecution of Chateau Constructions' opposition to the motion. We have referred above to the work on fraud and perjury. Mr Loel also charged for preparing a "flowchart" of proceedings, and took an active role in the preparation of written submissions, although junior counsel charged $1800 to draft and settle them. Much of the costs involved very extensive communication with Mr Loel's client, the precise nature of which is not disclosed from the materials. 36It may well be that all of this work was undertaken at the request of Mr Loel's client. A client may choose to request and obtain more legal services than those necessary efficiently to dispose of litigation. However, for the purposes of the application, it is necessary to bear in mind what Barton J long ago said in Donohoe v Britz (No 2) (1904) 1 CLR 662 at 666: "It is a general rule that, as between party and party, the luxuries of litigation must be paid for by those who indulge in them, the necessaries only are to be paid for by the losing side." To the same effect, Barwick CJ said in Stanley v Phillips (1966) 115 CLR 470 at 478: "The emphasis throughout is upon obtaining an adequate presentation to enable justice to be done: it is not upon the propriety of the steps taken by a litigant to ensure the maximum of success in his own cause. That of course he may do but not, in my opinion, at his opponent's expense." 37On the other hand, it is also to be borne in mind that there are substantial problems dealing with a determined litigant in person such as Dr Zepinic. His amendments, and voluminous affidavit, and applications for adjournments, undoubtedly increased the costs incurred. 38A detailed examination is neither necessary nor appropriate (nor, indeed, is it possible, having regard to the lack of detail on the invoices in evidence). A discount is invariably applied when calculating a gross sum costs order, as Chateau Constructions properly acknowledged; it asked for a discount of 21%. Having regard to all the matters mentioned above, including that but for Chateau Constructions' own application in 2013 made in the absence of Dr Zepinic which was held to be incompetent, no costs at all would have been incurred, a much greater discount is required. We would quantify Chateau Constructions' costs at $12,000 exclusive of GST (which is to say $13,200 inclusive of GST). That is slightly less than half of the costs actually incurred, because some of the costs are unrelated to the motion, some are only peripherally related, but, most importantly, there were more efficient ways in which this litigation could, and should, have been resolved.

Interest on costs 39Section 101(4) of the Civil Procedure Act confers a power to order interest on costs. From what was said on behalf of Chateau Constructions on 18 February 2014, at least one aspect of this application, and indeed perhaps its primary aspect, is to ensure that Chateau Constructions may obtain interest in the event that there is delay in enforcing its right to costs. But s 101(4) does not apply in those circumstances. The Court's order is enforceable directly, and interest is payable upon it to the extent it is unpaid in accordance with s 101(1). The orders made below will make it clear that the obligation to pay the amount of $13,200 arises today, and so Dr Zepinic has, pursuant to s 101(3), 28 days to pay that amount failing which interest will run, backdated to today, in accordance with s 101(2)(a). 40Chateau Constructions' submissions extend to seeking interest at court rates for the period between the time of this order and its actual payment of its solicitors' costs. Mr Loel says that Chateau Constructions has paid those costs in full, but there is no evidence as to when that occurred. It is therefore not possible to quantify the claim that Chateau Constructions makes. That tends to undercut the justification for the lump sum costs order that it seeks. There is every reason for these two parties to have no occasion for further disputation between them as to the quantification of costs. 41The retainer between Chateau Constructions and its solicitor is not in evidence, nor do the invoices bear a date on which they are payable. Counsel's fees were payable within 30 days, and it seems reasonable to proceed on the basis that the same was true for the solicitor's invoices. If so, the lion's share of the costs ($19,265.34) were in the invoice dated 27 February 2014, which has only recently fallen due. The invoices dated 31 July, 30 August, 30 September and 31 October 2013 are for amounts of $2062.50, $2839, $337.50 and $2405. Interest on those amounts, even at Court rates, for the applicable period is trifling - it is a tiny fraction of the costs incurred by Chateau Constructions on this motion. And, again, it was open to Chateau Constructions to bring this matter to a head rapidly. That did not occur; to anticipate the language of the authorities, it is a "countervailing discretionary factor" against an order for interest. 42To the extent that interest is sought for the time that Chateau Constructions has been out of pocket for having paid its solicitors' invoices on time, we would not order interest in this matter. Interest on the gross sum costs order we have made does not require a separate order for interest. We would therefore dismiss this aspect of the motion. 43That makes it unnecessary to resolve a conflict in the authorities as to interest, not all of which were referred to in Chateau Constructions' submissions. Chateau Constructions pointed to this Court's divided decision in Drummond and Rosen Pty Ltd v Easey (No 2) [2009] NSWCA 331, where Macfarlan JA, with whom Tobias JA agreed but from whom Handley AJA dissented, said at [3]-[4] that ordinarily there should be an order for interest on costs, so as to prevent a client from being out of pocket for costs it has paid, without any evidence of costs having in fact been paid. One basis for Handley AJA's dissent was that in Robb Evans of Robb Evans & Associates v European Bank Ltd (No 2) [2009] NSWCA 170, Basten JA, with whom Campbell JA agreed, required there to be evidence of when the amounts had been paid: see at [34]. Most recently, in Illawarra Hotel Company Pty Ltd v Walton Construction Pty Ltd (No 2) [2013] NSWCA 211; 84 NSWLR 436, this Court constituted by Meagher, Barrett and Ward JJA insisted that: "A party who contends that there should be an order for interest on costs must do more than point to the fact that the proceedings were protracted and that it had to outlay moneys on its own costs over a long period. The reasons for the protracted nature of the proceedings are of obvious relevance. To take a hypothetical example, one can imagine a case in which one party deliberately seeks to prolong proceedings with an eye to some collateral benefit of its own for which it is quite happy to pay the price of being out of the money it progressively outlays for costs. That hypothetical case can be contrasted with another in which a party has made strenuous effort to expedite matters and to avoid all delay with a view to the earliest possible trial but has been frustrated in those efforts by actions of the other party. A middle course is where each party acts with reasonable diligence and dispatch but the nature of the proceedings and their subject matter is such as to prolong them. A court might well take different attitudes to applications for interest on costs in these hypothetical cases. This litigation was, of its nature, time-consuming and exacting. Building cases often descend into what, to the outside observer, seems to be tedious analysis of a vast myriad of minutiae. In the absence of some sufficiently clear explanation of the reasons why this litigation proceeded as it did, in a timing sense, there would be no sound basis for exercise of the discretion concerning interest on costs, even if it were now exercisable by this Court in relation to the costs in the court below." 44Their Honours did not refer, and appear not to have been taken, to Drummond and Rosen Pty Ltd v Easey (No 2). 45At least on one view, there is a conflict in the authorities (not all of which even in this Court have been mentioned in the foregoing). This is not an appropriate case to resolve that conflict.

Orders and costs of this application 46This application has proceeded in the absence of Dr Zepinic, even though Dr Zepinic was the moving party in this Court. It is important that persons commencing proceedings comply with the rules to ensure that they nominate an Australian address where they may be readily and promptly served; originating process that fails to do so is apt to be regarded as incompetent. Chateau Constructions has failed to obtain an order for indemnity costs, or for interest. It has obtained a gross sum costs order, but in an amount substantially less than it sought, even putting to one side its claims for indemnity costs and interest. In substance it has failed. There should be no order as to costs of this application. 47It is, on its face, troubling that Chateau Constructions' lawyer would charge his client $14,963 ($16,459 including GST) in an application to improve his client's costs position, where the actual costs incurred, for which the costs order was a partial indemnity, were only $26,044 ($28,649 including GST). Even if the view were formed that unless Chateau Constructions obtained a lump sum costs order, its unquantified costs order would, for practical purposes, be valueless, that would not warrant the disproportionate expenditure disclosed in this proceeding. In Oshlack v Richmond River Council [1998] HCA 11; 193 CLR 72 at [69] McHugh J identified cases where a successful party "unnecessarily protracts proceedings" and "prosecutes the matter for the purpose of increasing the costs recoverable" as militating against the usual order as to costs. The fact that this is the fourth decision of this Court in the last year, three of which have been on applications made by Chateau Constructions, raises the possibility that this might become one of those cases. 48Accordingly, the Court makes these orders: (1)Set aside order 3 made on 18 February 2014. (2)Order that Dr Zepinic pay Chateau Constructions' costs of the motion dated 9 July 2013 and amended motion dated 6 August 2013 in the sum of $13,200. (3)Otherwise dismiss Chateau Constructions' notice of motion dated 3 March 2014.

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: 03 April 2014

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