Court of Appeal Supreme Court New South Wales Medium Neutral Citation: J and E Vella Pty Limited v Hobson (No 2) [2020] NSWCA 256 Hearing dates: 14 October 2020 Date of orders: 16 October 2020 Decision date: 16 October 2020 Before: Basten JA at [1]; Brereton JA at [4] Decision: Application for leave to appeal dismissed with costs. Catchwords: COSTS — Costs assessment — Determination – Gross sum costs order – Conflict between assessment of costs undertaken by solicitor of party entitled to costs and expert costs consultant – $36,000 in dispute – Where no objection taken to solicitor's affidavit evidence, and he was not cross-examined – Where some arguments raised on appeal relate to unchallenged orders not the subject of appeal Legislation Cited: Supreme Court Act 1970 (NSW), s 101 Cases Cited: Australian Health & Nutrition Accounting Limited v Hive Marketing Group Pty Ltd (2019) 99 NSWLR 419; [2019] NSWCA 61 Hancock v Rinehart (Lump Sum Costs) [2015] NSWSC 1640 In the matter of Beverage Freight Services Pty Ltd [2020] NSWSC 797 In the matter of Beverage Freight Services Pty Ltd [2020] NSWSC 861 Re Beverage Freight Services Pty Ltd [2020] NSWSC 509 Category: Principal judgment Parties: J and E Vella Pty Limited (First Applicant) Joseph Gregory John Vella (Second Applicant) Brian Charles Hobson (First Respondent) Hynadam Pty Limited (Second Respondent) Brett Soper (Third Respondent) Mechita Pty Limited (Fourth Respondent) Beverage Freight Services Pty Limited (Fifth Respondent) Beverage Distribution Australia Pty Limited (Sixth Respondent) Representation: Counsel: G A Sirtes SC w A F Fernon SC (Applicants) M Ashurst SC w M Dolenec (Respondents) Solicitors: Yates Beaggi Lawyers (Applicants) McEvoy Legal (Respondents) File Number(s): 2020/221321 Decision under appeal Court or tribunal: Supreme Court of NSW Jurisdiction: Equity – Corporations List Citation: [2020] NSWSC 861 Date of Decision: June 2020 Before: Black J File Number(s): 2015/157614 [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.] Judgment 1. BASTEN JA: The present matter is an application for leave to appeal from an order in a commercial matter quantifying the costs of interlocutory steps. The amount in dispute is conceded to be $36,000. Leave is required both pursuant to the Supreme Court Act 1970 (NSW), s 101(2)(c) (as a "costs only" appeal), and (2)(e) (as an interlocutory judgment); if it were a final judgment it would require leave pursuant to (2)(r). 2. A tight rein is kept on such applications. Generally they will not be entertained unless there is (i) a reasonably clear error of principle, (ii) a sum in the order of or above $100,000 in dispute, or (iii) the likelihood that further agitation of the proceedings will be inappropriately impeded or prevented. As Brereton JA explains, the present application satisfies none of these criteria. The proposed grounds fail even the lower standard of being reasonably arguable. 3. I agree leave to appeal should be refused; the applicants must pay the respondents' costs. 4. BRERETON JA: In the proceedings below which, though commenced in 2015, have not yet come to trial, the present applicants (Vella) claim relief in respect of an alleged breach of fiduciary duty by the present respondents (Hobson), in expropriating for their own benefit a business formerly carried on in partnership with Vella. 5. On 25 October 2019, Black J made an order that Vella give discovery of documents in various categories, category 3 of which referred to electronic accounting data including MYOB files or files held on other proprietary accounting software containing accounts and ledgers of Vella from 1 July 2013 to 30 August 2019 (discovery order). Although Vella's submissions in this Court contain an implicit complaint about that order, it has never been the subject of any application for leave to appeal, and complaints about it are presently irrelevant. 6. When the matter came before the Corporations Judge for directions on 23 March 2020, Vella did not appear, due to an error by their solicitor. It emerged that they had not complied with, inter alia, the discovery order. His Honour listed the proceedings for 25 March 2020, to hear the parties as to whether the proceedings should be dismissed by reason of 'the extensive and extended non-compliance with the Court's orders and directions'. That hearing was adjourned, initially to 2 April 2020 and then to 17 April 2020, in order to allow Vella to lead further evidence to explain their non-compliance. During the interval, Vella addressed some though not all of the outstanding discovery issues. The matter was then relisted on 29 April 2020 at Hobson's request to address subsequent developments and adjourned to 2 May 2020 after the late service of two further affidavits by Vella. In a judgment delivered on 8 May 2020, [1] Black J held that a history of delay by Vella in the conduct of the proceedings, their continuing default as to discovery, particularly in respect of financial records, and the detriment to Hobson and the public interest in the delivery of justice would warrant an order dismissing the proceedings unless Vella now made good the resulting detriment to Hobson. His Honour observed: [2] "It seems to me, however, an order short of dismissal of the proceedings can be made that will address the detriment to the Defendants, where the Plaintiffs have now substantially, although belatedly, complied with the discovery orders and given access to discovered documents. That can be achieved only if the Defendants are fully and promptly compensated for the costs that have been wasted throughout the several months of delay after discovery was due and the several discovery order compliance hearings, and that requires not only the making of an order as to costs but also compliance with that order. It seems to me that such compensation would require at least that costs be payable to the Defendants on an indemnity basis, in respect of the Defendants' wasted costs of the discovery process since the Plaintiffs' discovery was due to be provided on 21 December 2019 and of the several discovery order compliance hearings, and on the basis that those costs be payable forthwith and are to be determined on a gross sum costs basis (unless the Defendants do not wish to seek costs on that basis) in order to avoid the further delays which would be involved in an assessment." 1. His Honour made the following order (costs order): [3] "The Plaintiffs pay the Defendants' wasted costs of and incidental to (1) the Plaintiffs' failure to give discovery and access to discovered documents from 21 December 2019 until 30 April 2020 and (2) the determination whether the proceedings should be dismissed, on an indemnity basis and as determined (at the Defendants' election) on a gross sum basis, such costs to be payable forthwith." 1. Vella's submissions in this Court contain implicit, if not explicit, complaints about that order, but it has not been and is not the subject of any application for leave to appeal, and in those circumstances such complaints are, for present purposes, irrelevant. 2. As contemplated by the costs order, Hobson applied for a gross sum costs order. On that application, Hobson adduced affidavit evidence from their solicitor, Mr Grossman, which annexed itemised accounts of their solicitors' costs, counsel's fees and expert fees claimed, and explained the approach which he had taken to exclude items not caught by the costs order. The amounts claimed were solicitors' costs of $59,560, counsel's fees of $39,700 and other disbursements of $7,897, amounting to a total of $107,157, exclusive of GST. No objection was taken to Mr Grossman's affidavit evidence, and he was not cross-examined. 3. Vella adduced an affidavit and report of an expert costs consultant, Mr Taylor. His report was admitted over objection, and he too was not cross-examined. Mr Taylor did not dispute the hourly or daily rates claimed, nor did he identify any mistake in the manner in which Mr Grossman had discriminated between items caught by the costs order and those which were not. He assessed the amount payable under the costs order as $58,212 plus GST. The differences related essentially to how the various hearings of the show cause proceedings were treated (Mr Taylor treated many of them as directions hearings only); whether work on the discovery process in the meantime was to be included, as envisaged by the first limb of the costs order (Mr Taylor excluded it); experts fees (for which Mr Taylor made no provision); and the quantum of the discount to be applied on account of it being a gross sum order. 4. In a judgment delivered on 24 June 2020, [4] his Honour recognised that, given that costs were being assessed on the indemnity basis, Vella as the party liable bore the onus of showing that costs claimed were unreasonably incurred or unreasonable in amount (referring to Hancock v Rinehart (Lump Sum Costs) [2015] NSWSC 1640 at [61]). 5. His Honour allowed counsel's appearances on the days on which the show cause hearing was adjourned as a full brief fee, when Mr Taylor treated them as directions hearings. His Honour explained why, namely that the matter was set down for hearing, requiring full preparation, and was belatedly adjourned on the application of Vella. It was in this respect that his Honour said that Mr Taylor had been misinstructed. Moreover, counsel was entitled to a full fee in accordance with her fee agreement. 6. His Honour allowed costs not only of the show cause proceedings (under the second limb of the costs order) but also costs associated with the discovery process (under the first limb), for the reason that they were additional to what would usually have been incurred, or 'wasted', because of the 'fragmentary and disordered manner in which discovery was given'. [5] Mr Taylor had disallowed those costs. 7. His Honour allowed expert fees which had been incurred because of that 'fragmentary and disordered' discovery process. Mr Taylor had made no provision for them. 8. His Honour applied a discount of 10%, at the bottom end of Mr Taylor's range of 10-20%, for reasons which were amply explained and supported by reference to authority. 9. His Honour concluded: [6] "In summary, I am satisfied that the Court can do justice to the parties in making a lump sum costs order, which will avoid the detriment to the Defendants of the costs and time of an assessment and avoid the detriment to the Plaintiffs of the proceedings being dismissed, as would otherwise have been appropriate for the reasons noted in the Earlier Judgment. The parties should recalculate the costs on the basis of a discount of 10% to the solicitors' costs quantified in Mr Grossman's affidavit (after excluding items 1-3 and 195 referred to in Appendix 7 to Mr Taylor's report); including the costs claimed in respect of Ms Dolenec's fees, other than the amount of $2100 referable three items noted in paragraph 35 above; including the costs claimed in respect of Mr Ferrier's fees, other than $675 referable to item 16 and $1800 referable to items 18 and 19; and including other disbursements. The parties should seek to agree the question of GST or otherwise address it in submissions as to orders". 1. Vella did not engage in the process envisaged by those observations. In a judgment delivered on 3 July 2020, his Honour made the following order (quantification order): [7] 1. The Plaintiffs pay the Defendants' wasted costs of and incidental to (1) the Plaintiffs' failure to give discovery and access to discovered documents from 21 December 2019 until 30 April 2020; and (2) the determination whether the proceedings should be dismissed, on an indemnity basis, quantified in the gross sum of $94,864.00, such costs to be paid forthwith. 1. From that order, and from that order alone, Vella applies for leave to appeal. 2. The order is one which relates to costs alone. The amount genuinely in issue is essentially the difference between the amount of the order and Mr Taylor's assessment of $58,212 – some $36,000. 3. The draft grounds of appeal fail to identify any specific appellable error. 4. Ground 1 baldly complains that the order is unreasonable or plainly unjust, but does not explain why. The applicants' submissions refer to Australian Health & Nutrition Accounting Limited v Hive Marketing Group Pty Ltd, [8] but do not elaborate how there was any failure of his Honour's reasons to explain the result reached. In fact, they clearly do. The complaint seems to be that the quantum was disproportionate to the circumstances, in particular because the show cause proceedings were unsuccessful, in the sense that they did not result in dismissal of the proceedings. But that is a complaint about the (unchallenged) costs order, not the quantification order. 5. Grounds 2 and 3 complain that his Honour failed to consider, or gave no weight to, Mr Taylor's unchallenged report, and gave maximum weight to Mr Grossman's evidence while giving minimum or no weight to that of Mr Taylor. The contention that his Honour failed to consider Mr Taylor's evidence is untenable: his Honour deals with it at length. Complaints about weight do not found a challenge to a discretionary decision. In any event, his Honour appears to have given substantial weight to Mr Taylor's report, and explained where he has departed from it. It is quite wrong to suggest that his Honour gave full weight to Mr Grossman's evidence and none to Mr Taylor's. What his Honour did was to use Mr Taylor's evidence in the manner in which expert evidence in this context should be used – as an aid to assist and guide the court's analysis, and not as a substitute for it. These grounds disregard the detail, and treat the evidence as if it related only to the ultimate totals, and not the components which those totals reflected. 6. Ground 4 complains of a failure to apply 'the principles concerning the imposition of a gross sum costs order to the evidence'. It does not identify any particular error of principle. Ground 5 contends that his Honour should have found that the respondents failed to adduce sufficient evidence to allow the amount of a gross sum order to be determined fairly and with sufficient confidence. However, the evidence included itemised accounts of the respondents' solicitors, counsel and expert. Mr Taylor did not take issue with the manner in which Mr Grossman had allocated the solicitors' costs between issues caught by the costs order and those which were not. Mr Grossman's evidence was not the subject of objection, nor of cross-examination. 7. Ground 6 complains that his Honour took into account that no application had been made for leave to cross-examine the respondents' counsel about her fees, or Mr Ferrier (the respondents' expert) about his, in circumstances where neither were witnesses. As to the first, it may be agreed that his Honour's observation was inapt; Hobson's counsel was not a witness. But it was far from critical to the reasoning, which was that counsel was entitled to a full brief fee for the days in question because they were set down as hearings, not directions, which required full preparation. Moreover, her fee agreement entitled her to a full fee, and Vella bore the onus of showing that it was, in the circumstances, unreasonable. As to the second, it was not Mr Ferrier, but Mr Grossman, to whom his Honour was referring, rightly, as not having been challenged. 8. Ground 7 complains of error in the finding that Mr Taylor was wrongly instructed. That finding related to Mr Taylor's assumption that the short hearings were directions hearings, when as his Honour explained they were not. 9. The applicants' submissions mischaracterise his Honour's judgment as one which essentially accepts Mr Grossman's evidence and takes no heed of Mr Taylor's opinion. They fail to engage with the reasons contained in his Honour's judgment which explain why in some respects he departed from Mr Taylor's assessment. 10. When these matters were pointed out in the respondents' submissions, Vella's reply submissions once again did not engage with them, but resorted to proportionality and 'context', that context being the (unchallenged) discovery order, the course of the show cause proceedings, and the (unchallenged) costs order. What is relevant about that 'context' is that those orders stand unchallenged. In that 'context', the only relevant question is whether the quantification order is other than in accordance with the costs order. No tenable argument to that effect has been advanced. 11. Leave to appeal should be refused. 12. I propose that the application be dismissed, with costs. ********** Endnotes 1. Re Beverage Freight Services Pty Ltd [2020] NSWSC 509. 2. At [72]. 3. At [77]. 4. In the matter of Beverage Freight Services Pty Ltd [2020] NSWSC 797 at [43]. 5. In the matter of Beverage Freight Services Pty Ltd [2020] NSWSC 797 at [29]. 6. In the matter of Beverage Freight Services Pty Ltd [2020] NSWSC 797 at [43]. 7. In the matter of Beverage Freight Services Pty Ltd [2020] NSWSC 861 at [7]. 8. (2019) 99 NSWLR 419; [2019] NSWCA 61 at [8]. Amendments 19 October 2020 - Date of Orders changed. 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: 19 October 2020