Court of Appeal Supreme Court New South Wales Medium Neutral Citation: eInduct Systems Pty Ltd v 3D Safety Services Pty Ltd (No 2) [2015] NSWCA 422 Hearing dates: On the papers Decision date: 23 December 2015 Before: Beazley P and Basten JA at [1]; Simpson JA at [19] Decision: (1) Dismiss the respondents' notice of motion filed 1 October 2015. (2) Order the respondents to pay the applicant's costs of the motion. Catchwords: COSTS – application for gross costs order – principles – application first made after final orders – whether party seeking order agreed to discount – whether costs relating to assessment disproportionate to recoverable costs – complexity of assessment – impecuniosity of party liable for costs Legislation Cited: Civil Procedure Act 2005 (NSW), Pt 6; ss 56, 60, 98 Legal Profession Act 2004 (NSW), ss 370, 373, 378, 384(1) Legal Profession Uniform Law (NSW), Pt 4.3, Div 7 Supreme Court Rules 1970 (NSW), Pt 52A, r 6 Uniform Civil Procedure Rules 2005 (NSW), rr 36.16, 41.45, 51.45, 59.6 Cases Cited: Beach Petroleum NL v Johnson (No 2) (1995) 57 FCR 119 Bobb v Wombat Securities Pty Ltd (No 2) [2013] NSWSC 863 eInduct Systems Pty Ltd v 3D Safety Services Pty Ltd (NSWDC, 31 March 2015, unreported) eInduct Systems Pty Ltd v 3D Safety Services Pty Ltd [2015] NSWCA 284 Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Ltd (2013) 250 CLR 303; [2013] HCA 46 Ghougassian v Fairfax Community Newspapers Pty Ltd [2015] NSWCA 307 Hadid v Lenfest Communications Inc [2000] FCA 628 Hamod v State of New South Wales [2011] NSWCA 375 Harrison v Schipp [2002] NSWCA 213; 54 NSWLR 738 In the matter of Palladium Consulting Pty Ltd [2013] NSWSC 92 Wentworth v Wentworth (NSWCA, 21 February 1996, unreported) Category: Costs Parties: eInduct Systems Pty Ltd (Applicant) 3D Safety Services Pty Ltd (First Respondent) Anthony Ian Conacher (Second Respondent) Simon Paul Morrow (Third Respondent) 3D Safety Systems Pty Ltd (Fourth Respondent) Wishbone Consulting Pty Ltd (Fifth Respondent) District Court of NSW (Sixth Respondent) Representation: Counsel: J T Johnson (Applicant) M Castle/A Bailey (First to Fifth Respondents) Submitting appearance (Sixth Respondent) Solicitors: Russell Grant Phair (Applicant) Henry Davis York (First to Fifth Respondents) Crown Solicitors Office (Sixth Respondent) File Number(s): 2015/128727 Decision under appeal Court or tribunal: District Court Date of Decision: 31 March 2015 Before: Bozic DCJ File Number(s): 2014/313980 [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. BEAZLEY P and BASTEN JA: On 18 September 2015 this Court rejected an application for judicial review of a judgment in the District Court involving the assessment of costs. [1] An order was made dismissing the application, the applicant being ordered to pay the respondents' costs of the proceeding in this Court. 2. On 1 October 2015 the respondents sought a "specific gross sum" instead of assessed costs, relying on the power of the Court to make such an order pursuant s 98(4) of the Civil Procedure Act 2005 (NSW). There is no dispute that the Court has power to make such an order "at any time before costs are referred for assessment". [2] The question is whether the Court should make such an order in the present case. 3. There is a small though not insignificant number of cases in which disputes over costs appear to overwhelm the initial dispute between the parties. Part 6 of the Civil Procedure Act requires that the Court give effect to the overriding purpose of the Act and rules of court, namely the facilitation of the just, quick and cheap resolution of the "real issues" in the proceedings: s 56. Part 6 also requires that in any proceedings the Court should seek to resolve the issues between the parties in such a way that "the cost to the parties is proportionate to the importance and complexity of the subject-matter in dispute." [3] It is clear that the "subject-matter in dispute" is to be distinguished from costs; it should also be accepted that the "real issues" are so distinguished. 4. Civil litigation in the Supreme Court (and indeed in other courts) is neither free nor cheap. The parties will usually require the assistance of lawyers who, in the absence of legal aid, will almost invariably charge their respective clients for their services. Although the amount and liability to pay legal fees is undoubtedly of great significance to the parties, it should not be forgotten that there is a public interest in minimising unnecessary costs to the public purse through the provision of courts and other institutions to allow for the orderly settlement of civil disputes. To an extent it is no doubt inevitable that the system will breed disputes as to its own operation; nevertheless, as explained by the High Court in Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Ltd, [4] defusing the pursuit of "satellite interlocutory proceedings" is necessary to fulfil the overriding purpose under Part 6 of the Civil Procedure Act. [5] Expense Reduction concerned a dispute resulting from the inadvertent disclosure in the course of discovery of a document subject to client legal privilege. However, the same approach should apply with respect to the resolution of disputes as to costs. 5. There is one aspect of s 98(4) which differs from its predecessor, [6] namely the express statement that the Court may make an order "at any time before costs are referred for assessment". That might suggest that such an order could be made after the matter has been disposed of by final orders, without complying with the limitations imposed by Div 4 of Pt 36, in relation to the varying of judgments or orders, including after entry. Generally, the powers contained in s 98 are subject to the Uniform Civil Procedure Rules 2005 (NSW) ("the UCPR"). 6. The constraint on varying entered orders does not apply in the present case in any event because the application, made on 1 October 2015, was within the 14 day period permitted by the rules. [7] Nevertheless, a factor relevant to the exercise of the discretionary power to make a gross costs order is the failure of the respondents to give any indication, prior to the delivery of judgment that such an order would be sought. 7. The general rules contained in Pt 59 of the UCPR apply in this Court, subject to r 51.45. Rule 59.6 provides that a respondent must file and serve a response to the summons. That requirement (more commonly breached than observed) would have provided an opportunity for the respondent to indicate if it sought some special order by way of costs if successful. There being no response, that opportunity was not taken. The respondents' written submissions appear to have been filed late (they were to be filed and served within 28 days of service of the applicant's written submissions [8] ) but that factor paled into insignificance when compared with the procedural irregularities committed by the applicant. Relevantly for present purposes, the respondent made no claim for a special order in its written submissions, merely concluding that the application for review should be dismissed "with an order for the applicant to pay the respondents' costs." 8. A gross costs order involves a departure from the usual process by which costs are assessed in accordance with the statutory procedures now found in the Legal Profession Uniform Law (NSW). [9] 9. As this Court explained in Hamod v State of New South Wales, [10] the exercise of the power to award gross costs must take into account the overriding purpose identified in Pt 6 of the Civil Procedure Act. Beazley JA noted that particular factors which may merit consideration include "the relative responsibility of the parties for the costs incurred …; the degree of any disproportion between the issue litigated and the costs claimed; the complexity of proceedings in relation to their costs; and the capacity of the unsuccessful party to satisfy any costs liability". 10. The factors which are relevant in the present case are: 1. the complexity (and hence likely costs of) the assessment process; 2. if the costs of the assessment process are likely to be significant, whether they are likely to be unrecoverable; 3. the confidence with which the Court can estimate an approximate amount within reasonable limits; 4. the willingness of the applicant to discount the likely amount of costs recoverable on assessment, and 5. factors attending the particular application, including delay. 1. First, an application for review of a judgment of the District Court, which is limited to relevant legal error, should not involve significant complexity. While it is true that there were several stumbles on the part of the applicant in this Court (including commencing proceedings by a summons seeking leave to appeal) the process could not be described as complex. 2. This finding may cut both ways: on the one hand the costs of the assessment process are unlikely to be significant, while, on the other, the Court may have a relatively high degree of confidence that it can estimate an approximate amount allowable on assessment. 3. The second factor requires the Court to have regard to the possibility (or likelihood) that the costs of the assessment process would be unrecoverable in any event. Because those costs are not likely to be great, and the evidence of the impecuniosity of the unsuccessful applicant for review is limited, this factor does not materially support a gross costs order. 4. As to the third factor, there is sufficient evidence before the Court as to the costs incurred by the respondents. Costs being recoverable only on the ordinary basis, the actual costs must be discounted by a significant proportion, to reflect the likely assessment on that basis. A reduction of one-third on that account would not be unreasonable. 5. The fourth factor concerns the willingness of the applicant to discount the likely amount of recoverable costs. Where there is a fear that the other party will be impecunious and therefore the party seeking to recover costs will be unable to recover the full amount, one might expect it to be willing to discount the amount claimed by a significant proportion. In Hamod, one party commenced with a figure well below commercial rates; the other party offered to accept 60% of its estimate of recoverable costs. In the present case, the applicant has not conceded that it may be appropriate to make two levels of discount against the actual costs paid by it to its lawyers. The proposed reduction of 15% would not cover the difference between the assessment of indemnity costs and the assessment of costs on the ordinary basis. 6. In this circumstance, the final factor acquires some significance. While, as Simpson JA explains, in other circumstances this case might have provided an appropriate vehicle for a gross costs order, the delay in making the application meant that there was no opportunity for considered submissions as to what reduction the party seeking the gross costs order would be willing to concede. It would be quite inappropriate for the Court to require that further costs be incurred (and further public resources allocated) by a further hearing. In the result, the Court cannot be sure that the respondent would prefer an appropriately discounted figure, rather than preserve its right to seek an assessment. 7. The fact that the cost of seeking an assessment, the costs of the assessment process and the time likely to be consumed by that process will not be disproportionate to the costs sought, together with the final consideration that it is not for the Court to speculate as to what reduction the party seeking the gross costs order would be prepared to accept, there should be no order in the present case. 8. The respondents having been unsuccessful in this application should pay the applicant's costs of the motion. 9. SIMPSON JA: On 18 September 2015 this Court dismissed with costs an application for judicial review of a decision of Judge Bozic in the District Court: eInduct Systems Pty Ltd v 3D Safety Services Pty Ltd [2015] NSWCA 284 ("the principal judgment"). 10. As the (abbreviated) history I am about to recount will demonstrate, confusion will be avoided by the identification of the relevant parties by their names, rather than by reference to their roles in the tortured path of litigation that precedes the present application. A more detailed history of the litigation is to be found in [69]-[105] of the principal judgment. 11. In October 2012 eInduct Systems Pty Ltd ("eInduct") commenced proceedings in the Commercial List of the Supreme Court against 3D Safety Services Pty Ltd ("3D") (and four other defendants, to whom it is unnecessary to make further reference. I will refer to all defendants collectively as "3D".). On 24 April 2013, on the application of 3D, Stevenson J ordered that eInduct provide security for costs of the proceedings in the amount of $250,000, and ordered that eInduct pay the costs of that application, partly to be assessed on an indemnity basis. On 6 May Stevenson J dismissed a Notice of Motion by eInduct seeking an order that issues of liability be determined separately from and in advance of questions of damages. He ordered that eInduct pay the costs of that Notice of Motion. 12. The total of the costs payable by 3D to its solicitors in relation to the two costs orders was $286,913.45. For the purpose of determining the extent of eInduct's liability under the costs orders, those costs were assessed under the provisions of the Legal Profession Act 2004 (NSW) ("the LPA") (since repealed). On 8 May 2014, pursuant to s 370 of the LPA, a costs assessor issued a Certificate of Determination of Costs (referable to both costs orders) allowing $210,060.12 and a separate Certificate of Determination of Costs of Costs Assessment allowing $7,296.63. 13. On 2 June 2014, pursuant to s 373 of the LPA, eInduct applied for review of the costs assessor's determination. On 10 October 2014 a costs review panel issued a fresh Certificate of Determination pursuant to s 378 of the LPA. It determined that a fair and reasonable amount to allow for the costs incurred was a little over $217,000. It affirmed the determination of the costs of the costs assessment and issued a further certificate in respect of the costs of the review, in the amount of $2,656.50. It noted the apparent disproportion between the costs claimed and the proceedings to which they related, but said that that could be explained by the context of the litigation. 14. Pursuant to s 384(1) of the LPA, eInduct appealed to the District Court against the determination of the costs review panel. (Such an appeal is limited to "a matter of law".) Bozic DCJ dismissed the application: eInduct Systems Pty Ltd v 3D Safety Services Pty Ltd (NSWDC, 31 March 2015, unreported). That decision was the subject of the application to this Court for judicial review. As I have mentioned, the application was dismissed, and eInduct was ordered to pay 3D's costs. 15. 3D now seeks an order pursuant to s 98(4) of the Civil Procedure Act 2005 (NSW) that, rather than having the costs subjected to the assessment process, a gross sum payable to it by eInduct be specified. It has supported the application by affidavit evidence, of Ms Sarah Henningham, an employed solicitor who undertook the day to day carriage of the judicial review proceedings on behalf of 3D, and of Mr Jason Munstermann, a partner in the legal firm that represented 3D. Annexed to Ms Henningham's affidavit were copies of invoices issued to 3D in respect of the proceedings in this Court. They total $39,392.62. 3D further seeks costs of the motion, anticipated to be $2909, giving a total of $42,301.62. Recognising that specification of a gross sum ordinarily involves some discounting of the total costs for which the successful party is liable, 3D proposed that the Court specify 85 per cent of the costs incurred, or $35,956.38. 16. eInduct opposes the application. It asserts that the costs allowed by the costs assessor involved a reduction to 72 per cent of the costs initially claimed by 3D. This was, presumably, to suggest that a similar reduction, or at least a reduction greater than 15 per cent, could reasonably be anticipated if the present costs were subjected to the assessment process. In fact, on my arithmetic, the final figure allowed by the costs review panel was 75 per cent of the amount claimed. eInduct also claims that it needs an opportunity to raise relevant objections and test the various items of costs in a costs assessment. 17. eInduct also submits that the Court could not be satisfied that all the work claimed was relevant or necessary. By way of example, it points to costs charged by counsel, which it contends, were excessive and unjustifiable. 18. Section 98 of the Civil Procedure Act relevantly provides as follows: 98 Courts powers as to costs (1) Subject to rules of court and to this or any other Act: (a) costs are in the discretion of the court, and (b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and (c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis. (2) Subject to rules of court and to this or any other Act, a party to proceedings may not recover costs from any other party otherwise than pursuant to an order of the court. … (4) In particular, at any time before costs are referred for assessment, the court may make an order to the effect that the party to whom costs are to be paid is to be entitled to: (a) costs up to, or from, a specified stage of the proceedings, or (b) a specified proportion of the assessed costs, or (c) a specified gross sum instead of assessed costs, or (d) such proportion of the assessed costs as does not exceed a specified amount. 1. The principles applicable to an application for gross sum costs under the predecessor to s 98(4) (Supreme Court Rules 1970 (NSW) Pt 52A, r 6(2), in relevantly identical terms to s 98(4)) were spelled out in detail by Giles JA in Harrison v Schipp [2002] NSWCA 213; 54 NSWLR 738 as follows: "21 The power conferred by r 6(2) is not confined, and may be exercised whenever the circumstances warrant its exercise. It may appropriately be exercised where the assessment of costs would be protracted and expensive, 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 …" (internal citations omitted) In the following paragraph his Honour noted that specification of a gross sum is not the result of a process of taxation or assessment of costs and is likely to be achieved by the application of "a much broader brush": Hadid v Lenfest Communications Inc [2000] FCA 628. However, the approach taken in the estimate of costs must be "logical, fair and reasonable": Beach Petroleum NL v Johnson (No 2) (1995) 57 FCR 119. The power should only be exercised when the court considers that that can be done fairly between the parties, including with sufficient confidence to arrive at an appropriate sum on the materials available: Wentworth v Wentworth (NSWCA, 21 February 1996, unreported). 1. The power conferred by s 98(4)(c) or its predecessor has been exercised on a number of occasions, in a variety of circumstances. Relevant considerations include the apparent impecuniosity (where it exists) of the party liable to pay the costs (Bobb v Wombat Securities Pty Ltd (No 2) [2013] NSWSC 863); delays that will be encountered by the requirement for assessment (In the matter of Palladium Consulting Pty Ltd [2013] NSWSC 92, per Black J); the history of the proceedings between the parties (Palladium; Hamod v State of New South Wales [2011] NSWCA 375; Ghougassian v Fairfax Community Newspapers Pty Ltd [2015] NSWCA 307). It has more than once been suggested that the power is appropriately exercised where the sum of costs in question is relatively modest (Palladium; Bobb). 2. 3D adduced some evidence, through the affidavit of Mr Munstermann, tending to suggest that eInduct was unlikely to be in a position to pay the costs, the inference being that, should the matter proceed by way of assessment, further costs, potentially unrecoverable, would be incurred. There were two aspects to Mr Munstermann's evidence in this respect. The first was that, on 28 October 2015, in the District Court of NSW, a garnishee order was made against Westpac Banking Corporation (presumably of accounts held in the name of eInduct) and that this yielded less than $10,000. This fell well short of satisfying the debt in respect of which the garnishee order had been made. 3. The second aspect of the evidence was as follows: "31 I am informed by Brendon Green, a solicitor in my employ, that he has recently been informed by an employee in the Legal Notices Office of Westpac that it is highly unlikely that more money is held by Westpac or any related entity of Westpac for the plaintiff." 1. For myself, I would disregard this paragraph of the affidavit, as hearsay on hearsay, and of no probative value. However, the outcome of the garnishee order is of some relevance. One available inference is that eInduct had a relatively low level of funds, at least in its Westpac account. What is not known is what other resources it might have. Mr Munstermann also deposed that, in January 2015, eInduct paid into Court the $250,000 required as security for 3D's costs of the proceedings – that is, the principal proceedings. eInduct sought to rely on this payment as evidence of its solvency. However, it cuts both ways. The payment was made in January 2015, in satisfaction of an order that had been made in April 2013. 2. No conclusions of any value can be drawn about the capacity of eInduct to meet the order for costs, once quantified. However, it cannot be overlooked that, having regard to the failure of the judicial review proceedings in this Court, eInduct has a liability, under the two original costs orders, to pay to 3D a sum in excess of $226,000. Whether the $250,000 paid by way of security for costs of the principal proceedings is available to meet that liability is not clear. 3. Moreover, that 3D found it necessary to resort to the garnishee procedure is of some relevance. The inference available from that circumstance is consistent with what is known of the history of the proceedings between eInduct and 3D. In this respect, it ought not to be overlooked that the Certificate of Determination of Costs of the security for costs application and the application for separate determination of liability questions was almost $220,000, an indication of the manner in which the proceedings had been conducted. I refer also to [124] of the principal judgment, in which I said: 124 In this case, counsel accepted that the costs had escalated by reason of the manner in which eInduct chose to conduct the litigation. 1. In my opinion, examination of the history of these proceeding gives significant support to the application by 3D. That history amply demonstrates the appropriateness of making an order under s 98(4). 2. I accept that were the matter to go to costs assessment, eInduct may well be successful in shaving off some of the costs claimed. I have no experience in costs assessment, and am in no position to make any judgment about the quantum of the various invoices, or the need for the work to be undertaken. eInduct has made only the most general attack on the costs as claimed. It is because of the potential for reduction on assessment of the costs claimed that, conventionally, a discount is allowed on the costs claimed when a gross sum order is made. That is the price a successful party pays in order to obtain the benefit of early quantification. 3D properly recognised that in proposing a 15 per cent discount. 3. I propose the following orders: 1. That, in respect of the costs payable pursuant to the orders of this Court of 18 September 2015, the applicant (eInduct Systems Pty Ltd) pay to the respondents (3D Safety Services Pty Ltd and other respondents) the sum of $35,956.38 by way of gross sum costs order; 2. The applicant (eInduct Systems Pty Ltd) pay the respondents' costs of the Notice of Motion filed on 1 October 2015. ********** Endnotes 1. eInduct Systems Pty Ltd v 3D Safety Services Pty Ltd [2015] NSWCA 284. 2. The relevant text is set out at [28] below. 3. Civil Procedure Act, s 60. 4. (2013) 250 CLR 303; [2013] HCA 46. 5. Expense Reduction at [59]. 6. Supreme Court Rules 1970 (NSW), Pt 52A, r 6. 7. UCPR, r 36.16(3B). 8. UCPR, r 51.45(6). 9. See Pt 4.3, Legal costs, Div 7. 10. [2011] NSWCA 375 at [816] (Beazley JA, Giles and Whealy JJA agreeing). Amendments 03 February 2016 - Minor typographical errors corrected - [21], [25], [38] 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: 03 February 2016