Supreme Court New South Wales Medium Neutral Citation: Russo v Desiatnik (No 3) [2015] NSWSC 606 Hearing dates: 19 May 2015 Decision date: 20 May 2015 Jurisdiction: Common Law Before: Button J Decision: (1) The orders made by Magistrate Wahlquist on 19 September 2013 are amended so that they read as follows: Verdict for Plaintiff. Judgment given for $28,086.50 Filing Fees: $424.00 Service Fees: $50.00 Plus interest on $28,560.50 pursuant to s 100 of the Civil Procedure Act 2005 (NSW) from 24 August 2006. (2) The plaintiff must pay the defendant's costs of and incidental to the appeal and cross-appeal, including reserved costs and the costs of and incidental to the hearing on 19 May 2015. (3) Such costs are to be on a party to party basis up to 27 August 2014 and thereafter on an indemnity basis. (4) Such costs, pursuant to s 98(4)(c) of the Civil Procedure Act 2005 (NSW), are assessed, on a gross sum basis, at $24,000. Catchwords: COSTS – indemnity costs – whether it was unreasonable for the plaintiff to reject offer of compromise – whether gross sum costs order should be made Legislation Cited: Civil Procedure Act 2005 (NSW), s 98(4)(c) Local Court Act 2007 (NSW), s 39 Uniform Civil Procedure Rules 2005 (NSW) Cases Cited: Brown v Dunn (1893) 6 R 67 Calderbank v Calderbank [1975] 3 All ER 333 Guss v Veenhuizen (No 2) [1976] HCA 57; 136 CLR 47 Hamod v State of New South Wales [2011] NSWCA 375 Idoport Pty Limited v National Australia Bank Limited & Ors, Idoport Pty Ltd v Donald Robert Argus [2007] NSWSC 23 Noon & Anor v Bondi Beach Astra Retirement Village Pty Ltd & Anor (No 2) [2010] NSWCA 285 Russo v Desiatnik (No 2) [2015] NSWSC 256 Category: Costs Parties: Salvatore Russo (Plaintiff) Ronald J Desiatnik (Defendant) Representation: Counsel: E Peden (Defendant) Solicitors: Russo & Partners (Plaintiff) In person (Defendant) File Number(s): 2013/313178 Decision under appeal Court or tribunal: Local Court of New South Wales Jurisdiction: Civil Date of Decision: 19 September 2013 Before: J Wahlquist LCM File Number(s): 2012/108074 Judgment Introduction 1. On 19 March 2015, I delivered a judgment explaining why I dismissed an appeal brought by Mr Russo (the solicitor) and upheld a cross-appeal brought by Dr Desiatnik (the barrister). The appeal and cross-appeal were from the Local Court of New South Wales and were brought pursuant to s 39 of the Local Court Act 2007 (NSW). Each party was represented by counsel. The subject matter of the dispute before me was counsel's fees that had not been paid by the solicitor. The legal questions in a nutshell were whether invoices rendered by the barrister were valid and whether he was entitled to interest up to judgment. Reference should be made to that judgment: see Russo v Desiatnik (No 2) [2015] NSWSC 256. I shall not unnecessarily repeat here matters discussed within it. 2. At the end of that judgment, I invited counsel for the barrister to provide me with precise draft orders that would give effect to my judgment. I also stood the matter over for submissions about costs, and invited brief written submissions. 3. At the hearing of 19 May 2015, counsel for the barrister provided me with draft orders that were appended to her written submissions of 11 May 2015. The solicitor, who by that stage was appearing for himself, also provided me with written submissions dated 15 May 2015. 4. I shall deal with the proposed orders in a sequence that differs from the one in which they appear in the draft document of counsel. Orders sought by the barrister that were not disputed by the solicitor 1. A number of proposed orders were not in dispute before me. 2. First, the orders proposed by counsel for the barrister in draft order seven, in order to give effect to my judgment, were not placed in dispute orally or in writing by the solicitor. Those orders envisage a variation to the orders made in the Local Court on 19 September 2013. In light of the fact that they were not placed in dispute, I shall make those orders. For ease of comprehension they will be made in full, rather than by way of the interposition of phrases in the extant orders of the Local Court. 3. Secondly, it was not disputed that proposed orders one and two were extraneous, because I had already made them at the end of my first judgment. Accordingly, I shall not make the first two orders sought in the draft document. 4. Thirdly, proposed order three is to the partial effect that the solicitor must pay the costs of the barrister of the appeal and cross-appeal, including with regard to some reserved costs. It was expressly conceded in writing by the solicitor that costs should follow the event, and he did not resist orders to that effect. Nor did he place in dispute the question of whether he should be called upon to pay some reserved costs arising from an appearance before a Registrar of this Court leading up to the hearing of the appeal. 5. As well as that, proposed order three included costs in favour of the barrister of the hearing that was conducted before me yesterday. Although that matter was not explicitly placed in dispute by the solicitor, I infer that his position would have been that, unless the barrister enjoys substantial success in the costs application, the barrister should not have the costs of that secondary dispute. I shall return to the resolution of that question when I have resolved all other aspects of the dispute about costs. Indemnity costs? 1. Proposed order four was placed in dispute. Its effect is that, up until 27 August 2014, the barrister should have costs on a party to party basis. However, after that date, its effect would be that he would have costs on an indemnity basis. 2. Counsel for the barrister submitted that, by way of an email of 26 August 2014, the barrister offered to settle the whole of the dispute for a little under $81,000. The solicitor did not accept that offer, and the position of the barrister before me was that I would be satisfied that that refusal was unreasonable. Counsel made it clear that she did not submit that this was an offer under the Uniform Civil Procedure Rules 2005 (NSW); rather, it was an offer pursuant to the well-known procedure discussed in Calderbank v Calderbank [1975] 3 All ER 333. 3. The email appears as annexure E to the affidavit of the barrister sworn 27 April 2015 and read before me. I interpolate to say that the solicitor made it clear before me that he did not require the barrister, who was present in court, for cross-examination on his affidavit. Nor did the solicitor object to any portion of that affidavit, though he foreshadowed that he would address me on questions of weight, and did so. 4. Counsel for the barrister submitted that I would be satisfied that the rejection of the offer was unreasonable. That was said to be for the following reasons. 5. First, the amount offered constituted a very significant compromise. As can be seen from the email, the barrister claimed that his optimal outcome would be in an amount over $130,000. And yet an offer to compromise for a little over $80,000 was made, constituting a reduction of 40% from that figure. 6. Secondly, the appeal and the cross-appeal were founded, of course, on legal questions that had already been the subject of extensive ventilation in the Local Court. In other words, the solicitor was well apprised of the issues that were to arise in this Court on appeal, and that did indeed arise. 7. Thirdly, the offer was made well before the appeal was to be heard, and did not place any unreasonable time pressure upon the solicitor. 8. Fourthly, the offer did not contain an unreasonable time limit for acceptance, or indeed any time limit. 9. Fifthly, it is true that the email does not speak of the potential of indemnity costs being sought by the barrister if the offer were rejected. But counsel submitted that the evidence before the learned Magistrate and before me on the appeal demonstrates that the solicitor has been in practice for many years. She submitted that I could safely infer that the solicitor would have been well aware of the potential consequences of an unreasonable rejection of the offer made by the barrister. 10. In response, the solicitor submitted that a discrepancy between the contents of the letter and the contents of the affidavit of the barrister with regard to his costs in the Local Court called the sub-structure of the offer sharply into question. He submitted that that discrepancy would play a role in me determining that it was not unreasonable for the solicitor to reject the offer. 11. Separately, he submitted that I should not apply the benefit of hindsight to the fact that the cross-appeal seeking interest up to judgment did succeed. Once that consideration is subtracted from the claims made by the barrister in the email, it can be seen, he submitted, that the settlement sum was hardly a compromise at all. 12. Thirdly, the solicitor submitted that I could not safely infer that he was aware of the consequences of rejection of an offer in the circumstances. Accordingly, I should regard the failure of the email to speak explicitly of the potential of an application for indemnity costs as significant. 13. Finally, he submitted that the letter did not contain a true offer of compromise. 14. Turning to my determination of this question, it can be seen that, even leaving aside entirely the monetary sum founded on the success of the cross-appeal, the email identified the quantum of the existing Local Court judgment as being a little above $28,000. It identified the costs of counsel for the barrister in the Local Court (with regard to a hearing that extended over some days) as already being well over $30,000. And it identified counsel's fees in the appeal to this Court as already being $8,000. 15. Whilst I accept that there should be some discounting of the costs accrued to the barrister in the Local Court because they were ordered to be paid on an ordinary basis, it can be seen that the proposed settlement for a little over $80,000 was not hugely more than the barrister would have been reasonably entitled to expect as things stood as at the date of the email. And that says nothing of any costs subsequent to the letter that the barrister could claim if the appeal of the solicitor were not to succeed. Putting to one side any sums flowing from success on the cross-appeal, and putting to one side any future legal costs, the proposed settlement figure was nevertheless to my mind a reasonable one. 16. Secondly, I reject the proposition that one should not draw the inference from all of the evidence that the solicitor is conversant with civil practice, and would have been aware of the fact that unreasonable rejection of an offer of settlement can lead to an application for indemnity costs. It is noteworthy that, in his oral submissions to me, the solicitor told me of his experience with regard to whether costs in the Local Court and this Court would be assessed separately or together. 17. Thirdly, there is force in what counsel for the barrister has said; namely, that all of the issues on the appeal had been ventilated in the Local Court, and no submission made in the proceedings before me could have constituted a surprise to the solicitor. Nevertheless, it can be seen from my analysis above that I have excluded from my consideration of this question the sum that the barrister claimed in the email would be derived from the cross-appeal if it were to succeed. That is so as to avoid applying the benefit of hindsight to the question inappropriately: see Noon & Anor v Bondi Beach Astra Retirement Village Pty Ltd & Anor (No 2) [2010] NSWCA 285 at [11]. 18. Fourthly, I accept the submission of counsel for the barrister that there was nothing in the circumstances surrounding the letter or the contents of the letter that can be called in aid by the solicitor in support of the proposition that his refusal to accept the offer was not unreasonable. 19. Fifthly, there is nothing to suggest that the offer in the letter was not a genuine effort on the part of the barrister to bring all of the litigation to an end. 20. In all the circumstances, I am persuaded that it was unreasonable for the solicitor to reject the offer of 26 August 2014 to settle the matter for a little under $81,000 on 26 August 2014. For that reason, I shall order indemnity costs from the following day, in accordance with proposed order four. Gross sum costs order? 1. Turning to proposed order five, in short counsel for the barrister seeks a gross sum costs order, pursuant to s 98(4)(c) of the Civil Procedure Act 2005 (NSW). Reliance was placed on the distillation of principle in the judgment of Beazley P in Hamod v State of New South Wales [2011] NSWCA 375 at [813]-[820]. 2. It was said in a nutshell that a simple dispute between two members of the legal profession over a relatively modest sum has already expended a great deal of time and legal costs. Counsel submitted that I could be confident that there is no prospect whatsoever that the costs of the proceedings in this Court would be agreed. Having them assessed, she submitted, would mean that costs would continue to be expended on the assessment process itself. That process would extend for many months, perhaps years. 3. She submitted that the affidavit evidence before me, unchallenged by cross-examination, is that the barrister acted as the effective instructor of counsel who appeared for him in the proceedings in this Court. She also submitted that there is authority for the proposition that, in those circumstances, a party can claim legal costs: see Guss v Veenhuizen (No 2) [1976] HCA 57; 136 CLR 47. 4. She submitted that the invoices of the barrister that were themselves the subject matter of the proceedings in the Local Court demonstrate his hourly rate from some years ago. She submitted that, if I were to find (as I have done) that indemnity costs should be ordered after 27 August 2014, then that finding would itself be a factor that would provide me with confidence in the appropriateness of the sum sought. 5. She submitted that an appropriate quantum of a gross sum costs order would be $30,000, on the basis that I would be confident that that had built into it a discount for abundant caution. 6. In the alternative, she informed me that her instructions were that the barrister would consent to any reasonable further discount that I thought fit, in order to provide a resolution of these proceedings. 7. The solicitor submitted that the evidence contained in the affidavit of the barrister was in no way sufficient to give me the confidence to make a gross sum costs order. He submitted that the admitted discrepancy to which I have referred between the letter and the affidavit is something that would further rob me of confidence. He submitted that I had not been provided with any corroborating documents to support the propositions contained in the affidavit of the barrister. In short, he submitted that an essential precondition for the making of a gross sum costs order – confidence in its appropriateness, including as to quantum – had not been made out. 8. If I were against him on that, he invited me to the authority of Idoport Pty Limited v National Australia Bank Limited & Ors, Idoport Pty Ltd v Donald Robert Argus [2007] NSWSC 23 at [13] for the proposition that it is not uncommon for discounts to be very substantial when gross sum costs orders are made. As well as that, he submitted that at least some of the legal functions undertaken by the barrister as instructor would have been fulfilled by clerks in a firm of solicitors, with a concomitant saving in costs. 9. Turning to my determination, the solicitor did not seek to cross-examine the barrister on his affidavit before me when he was available to go into the witness box. Accordingly, in accordance with the well-known rule in Brown v Dunn (1893) 6 R 67, the solicitor is not in a position to call into question the credibility of the contents of the affidavit of the barrister, which constitutes his examination-in-chief in written form. In those circumstances, I do not consider it apposite for the solicitor to point to the absence of documents corroborating the sworn assertions of the barrister contained in the affidavit. 10. Secondly, I consider that my earlier finding that I should order indemnity costs after 27 August 2014 can inform my confidence as to whether or not a gross sum costs order in an amount approaching that sought by the barrister is appropriate. 11. Thirdly, I think there is force in the submission of counsel for the barrister that, were I not to make a gross sum costs order, these proceedings will continue to be very protracted. The hearing recently conducted before me was itself instructive in that regard. Without making any personal criticism of the solicitor, I record that during his oral submissions he sought to provide me with a folder containing a large number of authorities. Those authorities had been notified neither to his opponent nor to my Associate. That event occurred despite the fact that the solicitor had filed and served written submissions that bore a date that was four days before the date of the hearing. The hearing was delayed as a consequence, so that copies of all of those authorities could be made by my Tipstaff for counsel for the barrister. 12. Separately, the oral submissions of counsel and of the solicitor were extensive, though not inappropriately so. The result was that a rather straightforward hearing about costs that was (perhaps too optimistically) listed at 3:30 PM did not conclude until 5:20 PM. I consider that I can infer not only from the hearing of 19 May 2015 but also from the whole history of this litigation that, if a gross sum costs order is not made by me, this dispute about a relatively small sum said to have been payable some years ago will continue to be hard fought, and will continue to consume a great deal of time and money. 13. In short, I consider that a gross sum costs order should be made in all of the circumstances. Having said that, I think there is force in the submission of the solicitor that the sum proposed by the barrister should be markedly discounted, and should reflect the proposition that some of the work undertaken by the barrister could have been undertaken by a person without legal qualifications. Contrary to the submission of counsel for the barrister, I propose to make a gross sum costs order in the sum of $24,000. Costs of the costs hearing? 1. Finally, it can be seen that the barrister has enjoyed substantial success at this secondary stage. It follows that I consider that the second part of proposed order three is appropriate, and the solicitor must pay the costs of the hearing of 19 May 2015 as well. To be clear, because it post-dates 27 August 2014, that order is of course captured by the order with regard to indemnity costs. Orders 1. The orders made by Magistrate Wahlquist on 19 September 2013 are amended so that they read as follows: Verdict for Plaintiff. Judgment given for $28,086.50 Filing Fees: $424.00 Service Fees: $50.00 Plus interest on $28,560.50 pursuant to s 100 of the Civil Procedure Act 2005 (NSW) from 24 August 2006. 1. The plaintiff must pay the defendant's costs of and incidental to the appeal and cross-appeal, including reserved costs and the costs of and incidental to the hearing on 19 May 2015. 2. Such costs are to be on a party to party basis up to 27 August 2014 and thereafter on an indemnity basis. 3. Such costs, pursuant to s 98(4)(c) of the Civil Procedure Act 2005 (NSW), are assessed, on a gross sum basis, at $24,000. ********** 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: 20 May 2015