New South Wales Supreme Court CITATION : Phoenix Flowers P/L v Fumigate All Hours Co P/L [2005] NSWSC 615 HEARING DATE(S) : 22 June 2005 JUDGMENT DATE : 29 June 2005 JURISDICTION : Common Law Division JUDGMENT OF : Associate Justice Harrison DECISION : (1) The decision of the Costs Review Panel dated 25 October 2004 is affirmed; (2) The appeal is dismissed; (3) The summons filed 25 November 2004 is dismissed; (4) The plaintiff is to pay the defendant's costs as agreed or assessed. CATCHWORDS : Appeal determination of Costs Review Panel - indemnity for costs LEGISLATION CITED : Legal Profession Act 1987 (NSW) - s 208 Cachia v Hanes & Anor (1993-94) 179 CLR 403 Dyktynski v BHP Titanium Minerals Pty Ltd (2004) 60 NSWLR 203 Larsen v Vile [1999] NSWCA 397 CASES CITED : Murtiniti v Lyons [2004] NSWSC 135 Wentworth v Rogers [2002] NSWSC 709 Wentworth v Rogers [2004] NSWSC 1273 Phoenix Flowers Pty Limited ACN 060 531 393 (Plaintiff) PARTIES : Fumigate All Hours Co Pty Limited ACN 052 974 624 (Defendant) FILE NUMBER(S) : SC 13924/2004 Ms V Culkoff (Plaintiff) COUNSEL : Mr A M Gruzman (Defendant) Mr S Russo, Russo & Partners (Plaintiff) SOLICITORS : Mr G Bassil, Messrs George Bassil & Associates (Defendants) LOWER COURT JURISDICTION : Review Panel Members C G O'Brien & D Browne LOWER COURT FILE NUMBER(S) : 92187/2002 LOWER COURT JUDICIAL OFFICER : Costs Review Panel IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION ASSOCIATE JUSTICE HARRISON WEDNESDAY, 29 JUNE 2005 13924/2005 - PHOENIX FLOWERS PTY LIMITED ACN 060 531 393 v FUMIGATE ALL HOURS CO PTY LIMITED ACN 052 974 624 JUDGMENT (Appeal determination of Costs Review Panel – indemnity for costs) 1 HER HONOUR: By summons filed 25 November 2004 the plaintiff seeks firstly, an order that all of the determines and costs certificates of Costs Assessor Daniel Smyth made on 27 June 2003 and Christopher Gerard O'Brien and Darryl Browne the Costs Review Panel (the Panel) in Costs Assessment Number 92187/2002 made on 25 October 2004 be set aside; secondly, an order that the court declares the plaintiff has no liability to the defendant and HIH Legal Services Pty Limited for any costs; thirdly, an order that the court declares that the defendant did not indemnify HIH Legal Services Pty Limited for any costs; fourthly, an order that the court declares that no claim for indemnification for costs having been made against the defendant HIH Legal Services Pty Limited there is no liability by the defendant to pay any of the costs incurred by HIH Legal Services Pty Limited; and fifthly, an order that any costs assessment made by the defendant be assessed that the plaintiff has no liability to the defendant and HIH Legal Services Pty Limited for any costs. 2 The plaintiff is Phoenix Flowers Pty Limited ACN 060 531 393. The defendant Is Fumigate All Hours Co Pty Limited ACN 052 974 624. The plaintiff relied on the affidavit of Salvatore Russo sworn 2 March 2005. The defendant relied on the affidavit of George Bassil sworn 30 March 2005. Grounds of appeal 3 The grounds of appeal are that firstly, the Panel erred in holding that the plaintiff had a liability to the defendant and HIH Legal Services for costs; secondly, that the Panel erred in holding that the defendant was entitled to recover costs other than as an indemnity or compensation for costs payable by the defendant to HIH Legal Services Pty Limited where no claim for costs has been made by HIH Legal Services Pty Limited or the liquidators appointed over that company; thirdly, that the Panel failed to have regard to the substantial body of evidence that there was no liability to be satisfied and no indemnity or compensation required to be made by the defendant to any person in the absence of any demand, authority or request from HIH Legal Services Pty Limited; fourthly, that the Panel erred in failing to give any or proper reasons for their finding that there was a liability for the defendant to pay HIH Legal Services Pty Limited, which would warrant a departure from the indemnity principal for the payment of costs; fifthly, that the Panel erred in holding that the Panel was entitled to determine the nature of the retainer outside the provisions of the statutory regime as set up in Divisions 2 and 3 of Part 11 of the Legal Profession Act 1987 (NSW) (LPA) and to find a retainer existed between the defendant and HIH Legal Services Pty Limited; sixthly, that the Panel erred in holding that there was a valid or otherwise any costs agreement between the defendant and HIH Legal Services Pty Limited and which was contrary to the evidence and s 184 of the LPA; seventhly, that the Panel erred at paragraph 6.2 in finding that there had been no breach of the indemnity principal and that the defendant was entitled to claim its costs against the plaintiff where there were no costs claimed by HIH Legal Services Pty Limited against the defendant; and eighthly, in circumstances where no claim had been made by HIH Legal Services Pty Limited against the defendant the Panel erred in holding at paragraph 9 that Fumigate had not attempted to recover from Phoenix more than it had been required to pay for the relevant legal work which was against the evidence when no claim for legal work had been made by HIH Legal Services Pty Limited (in Liquidation). Background 4 Phoenix Flowers as plaintiff sued Fumigate and in the District Court for damages to the tulip bulbs it imported. The tulip bulbs were sprayed by Fumigate at the wharves and Phoenix alleges that it damage the tulip bulbs. On 13 May 2003 Judge Patten made an order that Phoenix Flowers pay Fumigate's costs. It is this order for costs that is the subject of the costs assessment process. 5 On 27 June 2003 Costs Assessor David Smyth issued a certificate as to determination of costs. The Costs Assessor assessed as a fair and reasonable amount of costs to be paid to Fumigate as $16,618.79. 6 On 25 July 2003 the plaintiff lodged an application to appeal the decision of the Costs Assessor. On 25 October 2004 the Panel issued a certificate as to determination of costs. 7 Section 208L LPA reads: "208L Appeal against decision of costs assessor as to matter of law (1) A party to an application who is dissatisfied with a decision of a costs assessor as to a matter of law arising in the proceedings to determine the application may, in accordance with the rules of the Supreme Court, appeal to the Court against the decision. (2) After deciding the question the subject of the appeal, the Supreme Court may, unless it affirms the costs assessor's decision: (a) make such determination in relation to the application as, in its opinion, should have been made by the costs assessor, or (b) remit its decision on the question to the costs assessor and order the costs assessor to re-determine the application. (3) On a re-determination of an application, fresh evidence, or evidence in addition to or in substitution for the evidence received at the original proceedings, may be given." 8 By virtue of s 208KI LPA this appeal provision and s 208M apply to the Review Panel. 9 The approach that now should be taken by the court in an appeal from a costs assessor (and Review Panel) was set out in Larsen v Vile [1999] NSWCA 397. It is incumbent upon the applicant to establish, in relation to any relief claimed under s 208L LPA that there has been some error of law in respect of the determinations made by the costs assessor and subsequently the costs review panel. As such, an appeal under s 208L LPA is confined to law. 10 The plaintiff's main submission is that as the defendant has not received any legal account from HIH Legal, nor paid any moneys, the defendant has no liability to pay the moneys and is entitled to recover any outstanding amount for costs from the plaintiff. Further the plaintiff submitted that if the defendant recovers an amount for costs and disbursements from the plaintiff, it may receive a windfall as the liquidator of HIH may not seek to recover those costs. 11 By Terms of Retainer dated 10 August 1999 between Fumigate appointed HIH Legal Services Pty Limited to act as its solicitors in relation to a claim made against it by Phoenix Flowers. The terms of the retainer state that it is acknowledged that: "(a) Legal Services is also acting in this matter on behalf of the Insured's insurers, (b) the claim is presently under investigation by the insurers who have reserved their rights as to whether to grant indemnity under the policy, (c) if indemnity is granted by the insurers such is granted on the information received and subject to the terms and conditions of the policy." 12 The retainer does not absolve the defendant of the responsibility to pay the legal costs it incurs during this litigation. 13 On 10 December 1999 a costs agreement was entered into between HIH Legal Services and HIH (Professional Indemnity) Pty Limited which details charge out rates and the like. From time to time HIH Legal Services rendered bills to HIH (Professional Indemnity) Pty Limited for work done in this matter [see Ex A]. 14 On 16 June 2003, L R Basile, Senior Claims Manager for Claims Management Group Limited, wrote to the defendant's solicitor, George Bassil & Associates stating: "We confirm that we have been appointed Claims Managers for FAI General Insurance Company Limited (in liquidation) ABN 15000327855. I further confirm that you have been authorised and directed by the liquidators of FAI General Insurance Company Limited (in liquidation) to take all steps to have the costs ordered to be paid by the Plaintiff, Phoenix Flowers Pty Limited in proceedings No. 5042 of 1999 in the District Court of New South Wales at Sydney, to be assessed and collected." 15 There is a missing link in the correspondence chain, namely the relationship between FAI General Insurance Limited (in Liq) and HIH (in Liq). 16 On 9 December 2004, a liquidator was appointed to HIH Insurance Limited [Ex B] (a date after both the costs assessment and review had taken place). 17 The Panel in its reasons under the heading "Indemnity" at [9] stated: " INDEMNITY The panel has considered Fumigate's solicitor's accounts for the purpose of determining that Fumigate has not attempted to recover from Phoenix more than it has been required to pay for the relevant legal work. The panel therefore called for and considered the accounts submitted in relation to the legal work which produced the costs order. These accounts are as follows: 9.1 account dated 22 September 1999 in the amount of $2,127.00 for the period from 23 July 1999 - 31 August 1999; 9.2 an account dated 31 December 1999 for an amount of $3,785.00 (being costs of $3,705.00 and $80.00 expenses) for the period from 1 September 1999 to 31 December 1999; and 9.3 an account dated 31 May 2000 in the amount of $11,532.60 being costs of $6,609.00 and expenses of $4,923.60 for the period from 1 January 2000 - 31 May 2000. The total of these accounts, $17,444.60, is greater than the amount that the panel considers are fair and reasonable costs, and the panel therefore confirms the determination recorded in paragraph 8 above." 18 The plaintiff referred to a passage from Cachia v Hanes & Anor (1993-94) 179 CLR 403 at 410 - 411 where the High Court stated: "To use the Rules to compensate a litigant in person for time lost would cut across their clear intent. Costs, within the meaning of the Rules, are reimbursement for work done or expenses incurred by a practitioner or practitioner's employee. Compensation for the loss of time of a litigant in person cannot be said to constitute costs within the meaning of the Rules. This is hardly surprising. It has not been doubted since 1278, when the Statute of Gloucester (1278 (UK) 6 Edw.I c.1.) introduced the notion of costs to the common law, that costs are awarded by way of indemnity (or, more accurately, partial indemnity) for professional legal costs actually incurred in the conduct of litigation. They were never intended to be comprehensive compensation for any loss suffered by a litigant. As Coke observed of the Statute of Gloucester, the costs which might be awarded to a litigant extended to the legal costs of the suit, "but not to the costs and expences of his travell and losse of time" (Coke, Second part of the Institutes of the Laws of England (1797) at p 288). See also Howes v. Barber (1852) 18 QB 588 at p 592 [118 ER 222 at 224]; Dowdell v. The Australian Royal Mail Steam Navigation Co. (1854) 3 El & Bl 902 at p 906 [118 ER 1379 at p1381].)." 19 This extract concerns the costs of a litigant in person and refers to professional costs actually incurred. The professional costs were incurred by HIH Legal. 20 The plaintiff also referred to Wentworth v Rogers [2002] NSWSC 709 where Barrett J stated at [35-37]: "Costs orders – the indemnity principle It is appropriate to look next at the provisions in Division 6 dealing with the quite separate and distinct subject of costs awarded by courts. That examination needs to be undertaken against the background of the general principle that costs awarded by order of a court are intended to indemnify (commonly only partially) a successful party who has incurred a liability for costs in relation to the proceedings. The existence of a liability of the client to pay costs lies at the centre of this concept, but it is clear that costs may in certain special and limited circumstances be recovered under an order for costs even where there is no right of recovery by the lawyer against his or her client. A common case is where the lawyer is an employee and represents his employer's interests in court without right to or expectation of reward apart from the salary which is payable regardless of the nature or quantity of legal work undertaken: see the comprehensive treatment of this subject in the judgment of Davies AJ in Commonwealth Bank of Australia v Hattersley (2001) 51 NSWLR 333. Another instance is where a lawyer resorts to self-help by performing legal work in proceedings in which he or she is a party. In Atlas v Kalyk [2001] NSWCA 10, the Court of Appeal held that the decision of the High Court in Cachia v Hanes (1993) 179 CLR 403 as to self-represented litigants generally did not disturb that court's earlier recognition of the lawyer self-help exception in Guss v Veenhuissen (No 2) (1976) 136 CLR 47. Apart from special circumstances and exceptions of this kind, absence of the lawyer's right to recover remuneration from his or her client will mean that a costs order in favour of the client will be unproductive. The matter is dealt with succinctly in the following passage in the judgment of Hamilton J in Grynberg v Muller; Re Estate of Bilfeld [2002] NSWSC 350: "In Ohn v Walton (1995) 36 NSWLR 77 at 79 Gleeson CJ (when Chief Justice of this Court) said that: 'the purpose of an order for costs is to indemnify or compensate the person in whose favour it is made, not to punish the person against whom it is made'. In Latoudis v Casey (1990) 170 CLR 534 a similar statement had been made by Mason CJ at 543 and also by other Justices (Toohey J at 562-563; McHugh J at 566-567). And see Cachia v Hanes (1994) 179 CLR 403 at 414. It flows from this principle that for a costs order to be made there must be some liability, satisfied or unsatisfied, to indemnify or compensate for. There was a graphic illustration of this principle in Gundry v Sainsbury [1910] 1 KB 645. There a plaintiff recovered damages in a County Court before a jury, but said in cross-examination that he had an agreement with his solicitor that he should not pay any costs. The County Court Judge held that the plaintiff could not recover costs and the Court of Appeal upheld this decision. In TNT Bulkships Ltd v Hopkins (1989) 98 FLR 352 a successful party's solicitors were unable to recover costs from the party relating to proceedings in the Supreme Court of the Northern Territory because not the holder of a current practising certificate. The successful party was held unable to recover costs from the unsuccessful party. And see per Griffiths CJ in Irving v Gagliardi (ex parte Gagliardi) No 2 (1895) 6 QLJ 200 at 200. The mere existence of an indemnity does not, of course, preclude the making of an order for costs: Johnson v Santa Teresa Housing Association (1992) 83 NTR 14." Another useful statement of the principle is found in the judgment of Master Malpass in Howard v Mechtler [2000] NSWSC 455: "Under an order for costs, the paying party is only obliged to pay such costs as the receiving party was primarily and potentially legally obliged to pay to his solicitor. There is an indemnity only in respect of the costs covered by the order. A receiving party cannot receive a sum in excess of the liability to his own solicitor. There can be co-existing obligations. The liability of the client is not excluded merely because there may be a third person to indemnify the client. It is necessary to prove that under no circumstances does the client have any liability to pay costs to his solicitors."" 21 The defendant referred to Dyktynski v BHP Titanium Minerals Pty Ltd (2004) 60 NSWLR 203 (which reversed in part the decision of Master Malpass – (2001) 50 NSWLR 710), it was held that the indemnity principle should operate on the substance rather than the form in identifying the real party to the proceedings. 22 Mason P stated at [23]: "These situations, including the circumstances of New Pinnacle itself, all involve a pre-existing representative relationship between the nominal plaintiff who sues and the principal/assignee/beneficiary on whose behalf the right asserted in the proceedings is litigated. But, as McColl JA demonstrates, the applicable principles require a substantive as distinct from a formal approach in identifying the real party to proceedings. If that party incurs the legal expenses of proceedings brought on his or her behalf by the "nominal" plaintiff, then recovery of costs awarded to the nominal plaintiff is not defeated by the indemnity principle." 23 McColl JA at [93, 94 & 95] stated: "There are two ways of looking at such cases. In New Pinnacle , the Court held that the indemnity principle did not apply. The better interpretation, in my view, is that expressed in Lenthall v Hillson , namely that even before Bramwell B's enunciation of the indemnity principle in Harold v Smith , "costs" was understood as an indemnity to the real party bringing the action without regard to the "liability of the nominal party, whose name must necessarily appear on the record." In such cases the indemnity principle operated on the substance rather than the form to produce a sensible and just result. The principle does not, in my view, rest upon the narrow proposition that there was a pre-existing representative relationship between the nominal plaintiff who sues and the third party on whose behalf the right asserted in the proceedings was litigated. Neither New Pinnacle nor Lenthall v Hillson turned on identifying such a relationship. The nominal plaintiff cases rest upon the proposition that costs have been incurred by the "real" not the "nominal" party and that costs are a "necessary consequence of a party having created litigation in which he has failed." The cases recognise that the indemnity principle must be "reasonably understood and applied." Applying the indemnity principle to ensure that a real party with an interest in the litigation can recover the costs incurred in proceedings brought in another's name accords with the proposition that "it is just and reasonable that the party who has caused the other party to incur the costs of litigation should reimburse that party for the liability incurred": Latoudis v Casey ." 24 It is my view that the real party bringing the action is the defendant. Ultimately, had an order been made the other way, namely that Fumigate was ordered to pay Phoenix Flower's costs, it would have been Fumigate and not the insurer that would have been responsible for those costs. The insurer can recover directly costs from its client, namely Fumigate, but the insurer cannot recover costs directly from Phoenix Flowers. Further, the letter from the Claims Manager of FAI Insurance Co Ltd (in Liq) dated 16 June 2003 authorises the solicitor to have the costs assessed and collected. It is my view that the defendant is entitled to recover its costs. 25 I might add that the plaintiff reserved its position on appeal point (v) relying on the decision of Patten AJ in Wentworth v Rogers [2004] NSWSC 1273 at [25] in support of appeal ground (v) where Patten AJ distinguishes the decision of Muriniti v Lyons [2004] NSWSC 135. 26 There is no error of law. The appeal is dismissed. The decision of the Costs Review Panel dated 25 October 2004 is affirmed. The summons filed 25 November 2004 is dismissed. 27 Costs are discretionary. Costs normally follow the event. The plaintiff is to pay the defendant's costs as agreed or assessed. The court orders: (1) The decision of the Costs Review Panel dated 25 October 2004 is affirmed. (2) The appeal is dismissed. (3) The summons filed 25 November 2004 is dismissed. (4) The plaintiff is to pay the defendant's costs as agreed or assessed. ********** 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.