Solicitors:
MGL Lawyers for the plaintiff
George Khoury & Co for the third and fourth defendants
File Number(s): 2019/00181425
[2]
BACKGROUND
On 30 September 2021, following a hearing that ran for 8 days, I delivered reasons for judgment on the substantive issues in the proceeding and determined, relevantly, that the plaintiff should obtain judgment (jointly) against the third, fourth and fifth defendants for the sum of $317,180 [1] . I also ordered that the third, fourth and fifth defendants pay the plaintiff's costs, as agreed or assessed; although I granted the plaintiff liberty to apply to vary that costs order.
As noted in My Reasons, shortly before the hearing, the plaintiff had settled his claim against the first and second defendants [2] and had obtained a default judgment against the fifth defendant, with damages to be assessed. Ultimately, only the third and fourth defendants were active in resisting the plaintiff's claim against them.
The plaintiff has now invoked leave granted to apply to vary the costs orders. The plaintiff now agitates for the following variations, each expressed as alternatives:
1. a partial order for indemnity costs from 24 August 2021, being the day after a rules offer was made to (and later rejected) by the third and fourth defendants after the plaintiff obtained a judgment on terms which were no less favourable to the plaintiff than those in the 'rules offer' pursuant to r 42.14 of the Uniform Civil Procedure Rules 2005 (NSW) [3] ('UCPR'); or a Calderbank offer expressed in substantially the same terms; or
2. a gross lump sum costs order pursuant to s 98(4) of the Civil Procedure Act 2005 (NSW) ('the CP Act').
The third and fourth defendants were all supplied, by Court direction, the opportunity to supply written submissions in response to the plaintiff's submissions. However, through an email message sent to my Associate, the solicitor for those defendants indicated that he had no instructions to make such submissions. The Court was informed that the plaintiff treated his application for costs as against the fifth defendant as being made ex parte. The Court therefore proceeds on the basis that the fifth defendant is unaware of the applications for indemnity costs or lump sum orders brought against him.
The plaintiff, who I will henceforth refer to as the applicant, relied upon two affidavits from his solicitor, Mr Tony Ko, both affirmed on 30 September 2021. One of those affidavits proved the costs of the plaintiff's legal representatives, including Counsel. The other mainly proved the rules offer and Calderbank offer and dispute regarding the authenticity of documents.
As the applicant's Counsel's written submissions acknowledge, the third and fourth defendants are pensioners and their legal representatives agreed to act for them pro bono. The financial position and circumstances of the fifth defendant have never been made apparent.
Before drilling into the merits of the claim, it is pertinent to observe two features. First, in his submissions, the applicant does not discriminate in his treatment of the fifth defendant, in comparison with the third and fourth defendants, against whom he obtained default judgment. This was inapposite. There was nothing proven in Mr Ko's affidavits to support a partial order for indemnity costs order against the fifth defendant. The plaintiff acknowledged, for example, that no rules offer was served on the fifth defendant.
The second feature is that Mr Ko's "longer" affidavit essentially exhibits what appears to resemble a large subset of the documentary tender that the applicant relied upon during the hearing. That this large documentary tender was the subject of a notice under r 17.4 of the UCPR was also inapposite. Rule 17.4 doubtless plays a helpful role in serving to reduce disputes about the authenticity of documents where there is some doubt about the authenticity of a document; via a costs sanction. But the reference in the rule to authenticity indicates that the relevant dispute is about whether a document is what it purports to be. A party should not be able to garner for itself a potential costs advantage by annexing what is, in effect, a tender bundle behind a notice to dispute the authenticity of documents, simply because no response to the notice is received within the stipulated time period.
To some degree, it is true, Mr Nick Daoud disputed that he applied his signature to certain documents at the hearing - but certainly nowhere near the volume of documents incorporated, by reference in the notices to dispute the authenticity of documents ie disputing that they were what they purported to be. He also said that he did not recognise or was aware of certain documents which went out under his and the fourth defendants' letterhead. This, it will be recalled, was part of a vigorous dispute over whether the fifth defendant, who generated documents on the letterhead of the third and fourth defendants (who conducted a business), acted as their agent. As a cursory review of My Reasons will indicate, the questions of agency, and continued agency (after December 2018) were key battleground issues at the hearing and it was not a foregone conclusion that the plaintiff would succeed on them (certainly not after December 2018). At any rate, such disputes as there were about documents were not about their authenticity. Mr Nick Daoud was not in a position to seriously dispute that an invoice on his letterhead was an invoice purportedly rendered by his business. What he did dispute was either his son's, (the fifth defendant) authority to raise it or the consequences for the latter of his doing so. To test all of this, the question would be raised what costs savings would have been made had the third and fourth defendants admitted the authenticity of each of the documents? Answer: practically nothing. The admissions would be limited only to the authenticity of the respective documents. The tender would have proceeded, nonetheless, for the purpose (generally) of proving the truth of what was contained in the documents.
Accordingly, albeit for a different reason to that acknowledged by the applicant in his Counsel's written submissions, I would not be disposed to making a partial order for indemnity costs on the basis of the notices to admit documents.
[3]
The plaintiff's rules offer
On 23 August 2021, the plaintiff served an offer of compromise. Its terms were:
"1. Judgment for the plaintiff as against the third and fourth defendants in the sum of $101,000.
2. Third and fourth defendants to pay the plaintiff's costs.
3. This offer is open for acceptance up to and including 12 September 2021.
4. This offer is made in accordance with rule 20.26 of the Uniform Civil Procedure Rules 2005."
[4]
Calderbank offer
Also on 23 August 2021, the plaintiff served a Calderbank offer. The singular term in the letter of that date (expressed to be 'without prejudice save as to costs') was substantially the same as contained in the purported rules offer: "The third and fourth defendants pay the plaintiff the sum of $101,000 plus costs as agreed or assessed." It was similarly open for acceptance until 12 September 2021.
[5]
Proof of the plaintiff's costs
This was the subject of Mr Ko's 'shorter' affidavit of 30 September 2021. That affidavit relevantly proved that up to that date, the plaintiff had incurred costs of $347,754.97 (incl GST), constituted by:
their solicitor's costs, being $113,417.70;
the disbursements associated with their retainer of Senior Counsel ($101,145) and Junior Counsel ($102,995.20);
other disbursements, apparently associated with printing ($29,792.22).
[6]
Analysis
The plaintiff cites the effect of r 42.14 of the UCPR, which presumptively confers an entitlement to indemnity costs where the circumstances identified in that rule are engaged; as they are here: the plaintiff's offer to the third and fourth defendants that they pay him $101,000 plus costs as agreed or assessed was no less favourable than the outcome from the judgment, which required them to pay him $317,180 plus costs as agreed or assessed. There can be no serious suggestion that the offer did not represent a genuine attempt to compromise. No submission was made that the rules offer was invalid for failing to meet the requirements of r 20.26 of the UCPR.
As the plaintiff correctly points out, it is up to the offerees, the third and fourth defendants, if they wish to resist the operation of the rule, to point to something which might persuade the Court to displace the rule and 'otherwise order'. Nothing has been put which might persuade the Court that it should otherwise order. It follows that, as against the third and fourth defendants, the plaintiff's costs should be payable on an indemnity basis from 24 August 2021.
What is, however, apparent is that even if a partial order for indemnity costs was made in favour of the plaintiff against the third and fourth defendants, on the basis of the third and fourth defendants' rejection of the rules offer in the circumstances that occurred, the costs of all but approximately five weeks of a proceeding commenced on 11 June 2019 would be payable on the ordinary basis. A partial order for indemnity costs would not spare the plaintiff from embarking upon a potentially protracted and costly assessment process in respect to most of their pre-hearing costs.
If a lump sum gross order was made, embracing the entirety of the plaintiff's costs (including the proportion of costs incurred after 24 August 2021, which they are entitled to have paid by the third and fourth defendants on an indemnity basis) the plaintiff proposes quantum in the sum of $200,000; acknowledging their receipt of $80,000 from the first and second defendants arising from the settlement against those defendants. It is not possible on the materials before the Court to ascribe any proportion of those costs recovered against the first and second defendants those which are reflected in costs incurred against the third and fourth defendants. It is also not practicable for the Court to attempt to segregate what proportion of the costs that the plaintiff has incurred to date are attributable to proof of the claims against the third and fourth defendants, and the fifth defendant notwithstanding the Court's determination that the fifth defendant acted as the agent of the third and fourth defendants and they were all jointly liable to the plaintiff. Since he obtained a default judgment against the fifth defendant, there was no need for the plaintiff to incur legal expense in proof of 'liability' issues against him. He only needed to prove the quantum of his damages claim against the fifth defendant, which occupied a very small proportion of the plaintiff's costs, certainly as indicated by the time spent on damages issues at the trial.
Because of this, whatever be the attraction of a gross lump sum order against the third and fourth defendants, I do not consider it to be an appropriate exercise of the discretion to make a gross lump sum order in which the fifth defendant is jointly liable with the third and fourth defendants for the entirety of the lump sum. This view is reinforced in the circumstances alluded to earlier whereby although a partial order for indemnity costs may be justified against the third and fourth defendants, there is no justification for it against the fifth defendant. Nevertheless, because of the agency relationship, the costs incurred by the plaintiff in proving his damages claim against the fifth defendant were the same as those incurred by the plaintiff in proving his damages claim against the third and fourth defendants. There is a need to avoid double compensation to the plaintiff. The fifth defendant should be jointly liable with the third and fourth defendants for that proportion of the plaintiff's costs.
There is clear force in the submission that given the current predicament of the third and fourth defendants, their status as pensioners and their age and given also the likelihood (indicated by the determination with which they fought at the hearing) that an assessment process could be a drawn out and costly procedure, the Court's predisposition is towards a lump sum gross order so long as that is fair to the third and fourth defendants and so long as the Court can be satisfied that an appropriate sum can be determined from the available materials. If those conditions can be satisfied, it is acknowledged that a 'broad-brush' approach is appropriate; and, further, that a discount should be made: see Bechara (t/as Bechara and Company) v Bates [2016] NSWCA 294 at [12]-[15]. Discounts are made to take into account contingencies which would arise in any assessment process: Hamod v New South Wales [2011] NSWCA 375 at [824]-[825]. If it was not possible to adopt a broad-brush approach, but courts were, instead, required a level of detail appropriate to a formal assessment, then such requirement would nullify the utility of the procedure. That said, as has been recognised in applications of this kind, it is often the case that an applicant will place before the Court the opinion of an expert costs consultant, independent of the parties, as to the likely outcome on assessment: Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2011] NSWSC 11 per Barrett J at [26]. That expectation has been disappointed in this case. Nevertheless, the invoices of the legal practitioners involved are detailed.
In favour of such an order is the circumstance, already touched upon, that a party's probable inability to pay a costs order will provide a good reason for making a lump sum order: Maylord Equity Management Pty Ltd v Nauer (No.2) [2017] NSWSC 1467 at [61]. As noted in My Reasons, it apparently suited Counsel for the third and fourth defendants to emphasise the circumstance that her clients were pensioners. No evidence was adduced to indicate that since My Reasons were delivered they now have acquired substantial assets to draw upon which could be realised to meet an adverse costs order, whether it be made on a lump sum basis or not.
It is also acknowledged in the authorities in this area, and reflected by the terms of s 60 of the CP Act, that the quantum of a lump sum order should take cognisance of the importance and complexity of the subject-matter in dispute. I accept, for example, that there were issues of some legal complexity, when characterising relations between the plaintiff viz a viz the third and fourth defendants and his relations viz a viz the fifth defendant which justified the briefing of experienced senior counsel.
Doing the best I can, and factoring into the analysis the costs that the plaintiff already has obtained (or stands to obtain) against the first and second defendants, the not insubstantial amount of pre-litigation costs being claimed in the supporting invoices, the propriety of applying a discount for the order, and the circumstance that any order for indemnity costs would, only address the last five weeks of costs incurred in the litigation, I am satisfied that the Court has been furnished with enough evidentiary material to fairly make a lump sum gross order, on a broad-brush basis, and further that an appropriate sum is $190,000.
In the circumstances, I vary the costs orders made on 30 September 2021 and substitute, in lieu of those orders, the following:
1. Pursuant to s 98(4)(c) of the Civil Procedure Act 2005 (NSW) the third and fourth defendants are to pay the plaintiff's costs in the gross sum of $190,000.
2. The fifth defendant is to pay the plaintiff's costs, as agreed or assessed, noting that the fifth defendant is jointly liable with the third and fourth defendant for so much of the plaintiff's costs as are attributable to proof of the quantum of the plaintiff's claim for damages.
[7]
Endnotes
Zheng v Ianni (No.3) [2021] NSWDC 521 ("My Reasons"). The reasons for these costs orders assume familiarity with My Reasons.
Relevantly, for present purposes, on the basis that the first and second defendants paid the plaintiff $80,000 for their costs incurred to that date (7 September 2021).
The plaintiff also purportedly invoked r 42.8 of the UCPR, based upon the defendants disputing facts subsequently proved. However, it appears from the supporting affidavit that what was disputed was the authenticity of documents, so that the appropriate rule is r 42.9. In any event, the plaintiff acknowledged that costs incurred in that regard would be subsumed in the costs following rejection of the rules offer.
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: 18 October 2021