New South Wales Supreme Court CITATION : Vrkic v Otta International [2003] NSWSC 641 HEARING DATE(S) : Written submissions - in chambers JUDGMENT DATE : 17 July 2003 JURISDICTION: Equity JUDGMENT OF : Campbell J DECISION : Order for payment of gross sum refused. GST not excluded from costs order. Losing active party to pay 80% of costs of winning party. CATCHWORDS : PROCEDURE - costs - application for costs order by way of a gross sum - whether affected by counsel being briefed on "direct access" basis - whether costs order should include indemnity for GST - application for costs of order seeking payment out of money paid into Court CASES CITED : Harrison v Schipp (2002) 54 NSWLR 738 Danny Vrkic, as liquidator of Entervin Pty Limited (In Liq) - Plaintiff PARTIES : Otta International Pty Ltd - First Defendant Martin Junker and Irene Bondarew - Second Defendants FILE NUMBER(S) : SC 5419/02 No appearance - Plaintiff COUNSEL : M Cohen - First Defendant R W Tregenza - Second Defendant No appearance - Plaintiff SOLICITORS : Unrepresented - First Defendant Peter Winters & Co - Second Defendant IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION EQUITY LIST CAMPBELL J 17 JULY 2003 5419/02 DANNY VRKIC, AS LIQUIDATOR OF ENTERVIN PTY LTD (IN LIQ) v OTTA INTERNATIONAL PTY LTD & ORS JUDGMENT 1 HIS HONOUR: In the final paragraph of the reasons for judgment which I delivered on 5 June 2003, I explained that I would make an order for costs, on the assumption that the only relevant principle was that costs should follow the event. I foreshadowed that if either party wanted to submit that any other result should obtain concerning costs, that I would consider further evidence and arguments. 2 As it turned out, both parties wanted to submit that a different result should obtain concerning costs. No further evidence was relied upon, but both parties made written submissions on costs. These reasons are the reasons for orders which I make in chambers, after considering those written submissions. 3 These proceedings arose out of the conduct of Entervin Pty Ltd (In Liq) ("Entervin"), a company which had been the registered proprietor of land at 4 Wall Avenue Asquith. Entervin gave a registered first mortgage over that property. As well, it agreed several times to mortgage the property, to various different people. 4 The liquidator of Entervin sold the land, paid out the first mortgagee, and paid the balance into Court. 5 Master McLaughlin made orders on 5 December 2002 making provision for the surplus of the proceeds of sale, after payment of the first mortgagee and the liquidator's costs, to be paid into Court. Those orders also provided for all the people of whom the liquidator had notice as being possible claimants to the surplus (a list of whom was included in the order) to be served by the liquidator with a copy of the orders, that any person making a claim was to file a Notice of Appearance within 28 days of service of the orders, and that any such person would, upon filing of such a Notice of Appearance, become a defendant in the proceedings. The orders made provision for the proceedings to be listed for further mention on 6 February 2003 before the Registrar. 6 Amongst the people named as potential claimants in that order were the first defendant, the second defendants, and a Mr and Mrs Watson. 7 On 3 December 2002 the first defendant had filed a document called a Notice of Intention to Appear. Another person, Sandra Louise Cameron, had also filed a Notice of Intention to Appear on 3 December 2002, but nothing was heard of her after that date. 8 On 17 January 2003 the second defendants filed a Notice of Intention to Appear. On 6 February 2003 Mr and Mrs Watson filed a Notice of Intention to Appear. 9 On 6 February 2003 the matter was mentioned before the Registrar, and orders were made that the first defendant be joined to the proceedings as a defendant pursuant to Part 70, rule 11(3), and that the first defendant have leave to appear pursuant to the provisions of Part 11, rule 1(A). 10 Also on 6 February 2003, orders were made that if any of a list of people (which included the second defendants, and Mr and Mrs Watson) wished to make a claim in relation to the net proceeds of sale they were to file a Notice of Appearance within 14 days, and upon the filing of that appearance would be added as a defendant to the proceedings. 11 It was on 19 February 2003 that the second defendants filed an actual appearance (as opposed to the Notice of Intention to Appear which they had filed on 17 January 2003). 12 On 10 March 2003 Mr Watson filed a lengthy affidavit. 13 On 13 March 2003 the matter was mentioned before the Registrar. The Court record shows that the first, second, and third defendants appeared, and that Mr Watson was to file and serve an affidavit on the first defendant by 20 March 2003. 14 Confusingly, on 18 March 2003 the solicitors for the plaintiff wrote to Mr and Mrs Watson, noting that they were not in attendance at the Court on 13 March. I can only assume that someone mentioned the matter on their behalf on 13 March. The solicitors for the plaintiff told the Watsons that the claimants to the funds in Court at that stage were themselves, the second defendants, the first defendant, and an entity called Tressair. They said that the matter would be next before the Court on 17 April, and that it was possible that on that occasion it might be referred for an immediate hearing. 15 On 17 April the matter was before the Registrar once again. It was placed in the Short Notice List. The Watsons were not in attendance. 16 On 16 May 2003 Mr Watson telephoned Ms Rixon, the solicitor for the second defendants, and told her that he and his wife were not going to proceed with the action. 17 The matter was listed for hearing before me on 21 May 2003. Mr and Mrs Watson did not appear on that occasion. 18 I delivered reasons for judgment on the question of who was entitled to the money paid into Court on 5 June 2003, holding that the first defendant was entitled. 19 The first defendant seeks an order that the second defendant pay its costs of the proceedings. The first defendants had been represented by counsel, Mr Cohen, at various of the directions hearings, and at the hearing. The first defendant had, since 11 February 2003, been appearing without a solicitor, with Mr Cohen briefed on a "direct access" basis. The first defendant sought an order for assessment of the costs on a lump sum basis. In that connection, they tended a Memorandum of Fees from Mr Cohen in a sum of $12,120, plus $1,212 GST. That Memorandum of Fees was prepared on a time costing basis, at the rate of $220 per hour, or $2,100 per day. 20 The second defendants submit that they should not have to pay all of the costs of the first defendant, because the first defendant would have needed to appear in any event to get the money out of Court. 21 While this submission has some brief initial attraction, it causes one to pose the question of why it was that the money was paid into court in the first place – it was because various people, including the second defendant, were making inconsistent claims to it. Thus, it was conduct of the second defendants which was, in part, the cause of the money being in Court. 22 Next, the second defendants submit that they were not parties to the proceeding until 19 February 2003, "and therefore the legal fees incurred by the first defendant in the proceedings were not necessitated by the role of the second defendants." The second defendants accept that they appeared at directions hearings prior to being joined, but say that that is not material. I do not agree. The active pressing of a claim by the second defendants, even before they filed an appearance and became a defendant, was a cause of the costs which were being incurred by the first defendant. 23 The second defendants also submit that the role of the Watsons in, equally with the second defendants, being a cause of the plaintiff incurring costs, means that the Watsons should pay some of the costs. The second defendants seek an order that the Watsons be made liable for half of the costs, after being given the opportunity to appear and make any further submissions on that topic. 24 In my view the role of the Watsons needs to be recognised, but not in the way the second defendants submit. The first defendant does not itself claim any costs order against the Watson. It would be most undesirable to further increase the costs of the proceedings by having another hearing connected with costs. I would recognise the way in which the Watsons caused some increase in costs of the first defendant to occur (but not nearly as much as the activities of the second defendants did) by providing for the first defendant to receive 80% of the costs to which it might otherwise be entitled. 25 The second defendants also submit that the GST claimed in Mr Cohen's bill should not be allowed. The ground for this is that the GST charged to the first defendant by Mr Cohen on his tax invoice would entitle the first defendant to an input tax credit. I do not accept this submission. An order for costs is intended to provide an indemnity, or partial indemnity. There is no evidence as to whether the first defendant is a company which would be entitled to receive any benefit from any input tax credit. Without such evidence, there is no reason to cut down what would ordinarily be the full measure of the indemnity. 26 The first defendant seeks a costs order by way of a gross sum. Part 52A, rule 6 of the Supreme Court Rules provides: "(1) Subject to this Part, where, by or under these rules, or any order of the Court, costs are to be paid to any person, that person shall be entitled to assessed costs. (2) Where the Court orders that costs be paid to any person, the Court may, at any time prior to the costs being referred by the registrar for assessment, further order that, as to the whole or any part (specified in the order) of the costs, instead of assessed costs, that person shall be entitled to— (a) a proportion specified in the order of the assessed costs; (b) the assessed costs from or up to a stage of the proceedings specified in the order; or (c) a gross sum specified in the order instead of the assessed costs." 27 In Harrison v Schipp (2002) 54 NSWLR 738 Giles JA made such an order. However that was in a context where the losing parties in the litigation were insolvent, a bank guarantee in the sum of $50,000 had been put up as security for costs by those parties, and those parties were refusing to agree that the amount of recoverable costs would exceed the amount of the guarantee. It was that circumstance which justified the broad-brush approach to assessment of the lump sum which his Honour there engaged in, arriving at a sum which comfortably exceeded $50,000. 28 The first defendant relies on the fact that in Harrison v Schipp at 742, Giles JA, while discussing the principles on which a gross sum might be ordered under Part 52A, rule 6(2) said that the power may be exercised "where the assessment of costs would be protracted and expensive". I see no reason why assessment of the costs of these proceedings ought be protracted and expensive. Further, Giles JA went on, in the same sentence, to say "and in particular if it appears that the party obliged to pay the costs would not be able to meet a liability of the order likely to result from the assessment". There is no reason to believe this is such a case. 29 As well, the second defendant wishes to challenge the reasonableness of various of the items on Mr Cohen's Memorandum of Fees. I say nothing about the merits of any such challenge. It suffices for present purposes to say that I see no reason why the fact that the first defendant has chosen to appear without a solicitor ought be a reason to deny the second defendant the opportunity of challenging the Memorandum of Fees. I think it would be most undesirable for a judge to take upon himself or herself the quantifying of bills of costs, save in very clear circumstances. I decline to order payment of costs in a gross sum. Orders 1. I revoke Order 2 made 5 June 2003. 2. I order the second defendants to pay 80% of the costs of the first defendant of the proceedings. ********** Last Modified: 07/31/2003 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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