The question before the Court is whether the defendant should be entitled to recover forthwith from the plaintiff the costs of a mediation assessed on a gross sum basis in accordance with an order for costs thrown away made on 12 May 2023 following the granting of leave to the plaintiff to amend its claim and, if so, the amount of costs that should be awarded.
[2]
Background
In the proceedings, the plaintiff claims damages for alleged breaches of warranties contained in a share sale agreement by which the plaintiff acquired from the defendant all the shares in Iron Mountain Australia Holdings Pty Ltd. Iron Mountain carries on a record storage and retrieval business. The alleged breach of warranties concern inaccuracies in Iron Mountain's record management system.
The proceedings were commenced on 20 March 2019. Evidence was served by both parties over an extended period of time and was finally completed on 28 October 2022. Following completion of the evidence, the parties participated in an unsuccessful mediation on 9 November 2022. Immediately following the mediation, the defendants were notified that the plaintiff had engaged new solicitors. On 13 December 2022, those solicitors notified the defendant's solicitors that the plaintiff intended to file a notice of motion seeking leave to amend its claim and to adduce further evidence. That motion was filed on 15 December 2022. The effect of the amendments was to abandon the way in which the plaintiff put its claim for damages, which the plaintiff frankly admitted suffered from serious difficulties, and to advance a substantially different claim on damages.
The motion came on for hearing on 17 February 2023. At that time, I directed that the plaintiff file and serve the additional evidence on which it sought to rely by 31 March 2023 and stood the application to amend over until 14 April 2023. On 31 March 2023, the plaintiff served an additional 15 lay affidavits and 3 expert reports.
On 12 May 2023, the Court granted leave to the plaintiff to file its amended summons and list statement and to rely on the additional evidence the plaintiff had filed. It also ordered that the plaintiff pay the defendant's costs thrown away by reason of the amendments.
At the time those orders were made, the defendant sought orders that, in accordance with the order for costs thrown away, the plaintiff pay forthwith the defendant's wasted costs associated with the evidence of an expert accountant, Mr Ross, and of the mediation assessed on a lump sum basis in the sum of $248,340.82. Mr Ross is an expert engaged by the defendant who prepared an expert report which, among other things, responded to a report on which the plaintiff no longer relies. The sum of $248,340.82 comprises $162,846.75 charged by Mr Ross and $85,494.07, which are said to be the defendant's legal costs of attending the mediation.
At the time the application was made, I indicated that I was inclined to award the defendant its costs of obtaining the report of Mr Ross to the extent that those costs were wasted, but deferred the quantification of those wasted costs until the defendant had filed its evidence in response to the new evidence served by the plaintiff in accordance with a timetable agreed between the parties. I indicated that I would reserve my judgment on the question whether the defendant was entitled to recover its costs of the mediation on a gross sum basis and would deliver my judgment on that issue at the time I dealt with the application for a gross sum costs order in respect of Mr Ross's costs.
Having considered the matter, I have concluded that the defendant should be entitled to recover the costs of the mediation as costs thrown away and that those costs should be assessed on a lump sum basis. There is no reason why that judgment should not be delivered now.
[3]
Consideration
At the time of hearing the application to amend, I made it clear that the price of the amendment may be that the plaintiff would have to pay costs thrown away forthwith assessed on a gross sum basis. This could not be described as an ordinary amendment application. Prior to the amendment application, the plaintiff advanced a particular case on damages. The parties prepared substantial evidence on that basis and the case had reached a point where it was ready to be set down for hearing. At that late stage, the plaintiff effectively abandoned its damages claim and has sought to advance a new case on damages which will require the defendant to abandon significant parts of its evidence, to prepare new evidence and to reassess its defence. It has plainly incurred substantial costs that have been wasted. It is out of pocket for those costs. It is appropriate in those circumstances that, to the extent that those costs can be quantified now, they should be paid now.
So far as the mediation costs are concerned, the defendant relies on the following passage from the judgment of McDougall J in Ingot v Macquarie [2004] NSWSC 1219 at [57] (Ingot):
The defendants submitted that the costs related to the mediation were wasted costs that should be included in any order for indemnity costs. The plaintiffs submitted that they were not. Mr Bonner said in cross-examination that he did not accept that costs relating to the mediation should be regarded as wasted. It would be open to me to resolve this dispute (if I were otherwise minded to grant leave further to amend) by ordering that the defendants should have, as part of their wasted costs, their costs of and incidental to the mediation. Even if it is not clear that some or all of those costs (and, if some only, the proportion) could strictly speaking be regarded as "wasted", such an order would ensure that, where doubt exists, the benefit of the doubt goes to the innocent party. In other words, it would ensure that, as between the party causing the problem and the party suffering it, it is the former that bears the burden. Such an approach could be criticised as being somewhat arbitrary; but, I think, there is much to be said for the proposition that, in seeking to dispel prejudice, the Court should act with resolution rather than hesitation. An approach that requires the drawing of nice distinctions is unlikely to achieve that result.
Mr Sulan SC, who appeared for the defendant, submitted that in accordance with the principles stated by McDougall J in that passage, the defendant should be entitled to recover its costs of the mediation as costs thrown away.
Mr Lawrance SC, who appeared for the plaintiff, sought to distinguish the decision of McDougall J on three bases. First, he pointed out that ultimately the amendment in that case was not allowed. Second, in that case, the proposed amendments involved "a complete reworking" of the claim with the result that "[i]n appearance and, in some ways, in substance it is a completely different document": at [13]. In the present case, the nature of the plaintiff's claim has not changed. It has simply amended the way in which it quantifies its damages. Third, he submitted that, in contrast to the position in Ingot, there was no evidence in this case that the defendant would not have proceeded with the mediation if it had known that the plaintiff would amend its case.
In my opinion, it is appropriate in this case to treat the costs of the mediation as costs thrown away by reason of the amendment. It is plain from the sequence of events that the parties were waiting for evidence to be completed before attending a mediation. An important issue in the mediation would have been the quantification of damages. As the plaintiff now recognises, and as the defendant may well have appreciated at the time of the mediation, the plaintiff's case on damages was fundamentally flawed. It is to be expected that that would have affected what happened in the mediation. It may well be appropriate for there to be a further mediation once the defendant has responded to the plaintiff's new evidence. In that context, it seems to me that the costs of the mediation were wasted. The costs were wasted in the sense that the mediation failed. Although of course it is correct, as Mr Lawrence submitted, that the Court cannot know what occurred during the mediation, it is reasonable to infer that one of the contributing factors to the fact that the parties were unable to reach agreement is that the mediation was conducted on a false basis. The costs were also wasted in the sense that, once evidence is complete, it is likely that the Court will order a further mediation, which would have been unnecessary if the original mediation had been conducted based on the evidence on which the parties actually intend to rely.
It may be that some of the work done for the failed mediation will be of assistance to the defendant in a future mediation or to its preparation generally. However, that is not obviously so. I agree with the view of McDougall J that in cases such as this, the Court should act with resolution rather than hesitation. The defendant no doubt participated in the mediation in good faith. It can be inferred that it would not have agreed to do so if it had known that the plaintiff intended to completely reformulate its claim for damages. Having regard to the confidentiality of the mediation, it is difficult for the defendant to explain what occurred in the mediation to justify an order that it should recover all its costs of the mediation. The plaintiff should not be entitled to take advantage of those difficulties.
Any assessment of a gross sum costs order should be based on an informed assessment of the actual costs and should be logical, fair and reasonable: Beach Petroleum NL v Johnson (No 2) (1995) 57 FCR 119 at 124 per von Doussa J; Harrison v Schipp (2002) 54 NSWLR 738; [2002] NSWCA 213 at [22] per Giles JA.
Mr Wiseman, the partner at Allens responsible for conducting the defence of the proceedings on behalf of the defendant, swore an affidavit in support of the application for a gross sum costs order. According to his evidence, the defendant's total costs of the mediation were $85,494.07 comprising:
1. Solicitor's fees of $64,030.32 including GST;
2. Counsel fees of $8,470 for senior counsel and $3,753.75 for junior counsel;
3. Mediator's fees of $9,240.
In order to calculate the amount for solicitors fees, it appears that Mr Wiseman has gone through the relevant invoices and identified those items of work that relate to the mediation by reference to their description. The approach he has taken appears to be reasonable. I accept that not all those amounts will be recoverable on assessment. The accounts show that four fee earners worked on the mediation. They included Mr Wiseman and three others. At the time, Mr Wiseman's charge out rate was $866 per hour (before adding GST). The rates for the other fee earners were $599 per hour, $487 per hour and $351 per hour. The total amount claimed would not be recovered on assessment. It is likely that there would be reductions for duplication. There may also be a reduction in the charge out rates which are allowed. However, as a reasonable rule of thumb, it could be expected that the defendant would recover all the solicitor disbursements and approximately 70 percent of the solicitor fees. In my opinion, that is an appropriate amount to allow in this case. There is no reason why the defendant should not recover the full amount charged by counsel and the mediator.
It follows that the defendant should be entitled to recover $66,284.97 on a gross sum basis (that is ($64,030.32 X 0.7) plus $8,470 plus $3,753.75 plus $9,240).
[4]
Order
The order of the Court therefore is that the plaintiff pay forthwith the defendant the sum of $66,284.97 in respect of the defendant's costs of attending the mediation in this matter that occurred on 9 November 2022.
[5]
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Decision last updated: 19 May 2023