Supreme Court New South Wales Medium Neutral Citation: McGrath v Rebuild Now Pty Ltd (No 2) [2016] NSWSC 858 Hearing dates: 15 June 2016 Decision date: 23 June 2016 Jurisdiction: Common Law Before: Button J Decision: (1) The appellants Mr Brian McGrath, Ms Natalie McGrath and PWA Engineering Pty Ltd, must pay the costs of the respondent, Rebuild Now Pty Ltd, on the ordinary basis, in the sum of $45,000. Catchwords: COSTS – indemnity costs – party/party costs – whether gross sum costs order should be made Legislation Cited: Civil Procedure Act 2005 (NSW), s 98(4)(c) Cases Cited: Leichhardt Municipal Council v Green [2004] NSWCA 341 McGrath v Rebuild Now Pty Ltd [2016] NSWSC 636 Category: Costs Parties: Brian McGrath (First Applicant) Natalie McGrath (Second Applicant) PWA Engineering Pty Ltd (ACN 164 409 572) (Third Applicant) Rebuild Now Pty Ltd (ACN 159 680 047) (Respondent) Representation: Counsel: B Le Plastrier (Applicants) S Jayasuriya (Applicants) G Stapleton (Respondent) Solicitors: Lynch Andrews Lawyers(Applicants) Savage Defence Lawyers (Respondent) File Number(s): 2015/302352 Judgment Background 1. On 18 May 2016, I resolved an appeal brought by Mr Brian McGrath, Ms Natalie McGrath and PWA Engineering Pty Ltd (the appellants) against a civil judgment of the Local Court of New South Wales in favour of Rebuild Now Pty Ltd (the respondent) by dismissing the appeal: see McGrath v Rebuild Now Pty Ltd [2016] NSWSC 636. 2. At the request of counsel for the respondent, I reserved the question of costs. A short hearing with regard to the latter question was conducted on 15 June 2016. 3. The submissions of the respondent were as follows. 4. First, costs should follow the event, and be ordered in its favour. 5. Secondly, due to a combination of factors, costs of the appeal proceedings in this Court should be ordered on an indemnity basis. 6. Thirdly, pursuant to s 98(4)(c) of the Civil Procedure Act 2005 (NSW) (the Act), I would make a gross sum order with regard to those indemnity costs, in the sum of $79,304.75. 7. The appellants did not resist the unremarkable proposition that costs should follow the event. They did resist, however, the propositions that indemnity costs should be ordered, and that a gross sum costs order should be made. 8. At my invitation, each party addressed me with regard to the intermediate position: namely, whether there should be a gross sum costs order, but with regard to costs calculated on the ordinary basis. Submissions of the respondent for indemnity costs 1. The submissions of the respondent may be summarised as follows. 2. First, bearing in mind the finding in my judgment disposing of the appeal at [18] that the ground of appeal relied upon was "devoid of merit", this case fell within that category of proceedings that calls for the exceptional remedy of indemnity costs. 3. Secondly, the dilatory approach of the appellants in prosecuting their appeal, between the entry of the Local Court judgment on 23 September 2015 and the hearing of the appeal before me on 22 April 2016, played a role in calling for that exceptional order. 4. Thirdly and finally, so did the fact that, before the hearing in the Local Court, a "Calderbank offer" was made by the respondent (which led, in due course, to the learned Magistrate ordering that the appellants pay indemnity costs after a certain date). It was accepted that that offer had not been repeated prior to the appeal being heard, but its making at an earlier stage was nevertheless submitted to be a relevant factor. 5. Counsel submitted that those factors were relied upon for their combined force in support of the application for indemnity costs. Determination of indemnity costs 1. Turning to my determination of this discrete question, I accept that the bases for the submission have force, both individually and in combination. 2. It is also true that I described the ground of appeal pressed as being "devoid of merit", and dealt with it concisely in my judgment. Having said that, I was prepared to accept a basal proposition of the appellants with regard to an asserted error of law in the approach of the learned Magistrate. I also think it would be a mischaracterisation of my judgment dismissing the appeal to say that it demonstrates that the ground was so unmeritorious as to call for indemnity costs. 3. Secondly, on the material placed before me, I am prepared to accept that the appeal was not prosecuted optimally. But there is force in the submission of the appellants that indemnity costs are not to be ordered as some sort of punishment for dilatoriness. 4. Thirdly, the submission of the appellants made at the costs hearing that the failure to renew the Calderbank offer specifically with regard to the appeal proceedings has force in arguing against the granting of indemnity costs as well. 5. In short, indemnity costs are an exceptional remedy, especially when the moving party can point to no explicit offer as their foundation: see generally Leichhardt Municipal Council v Green [2004] NSWCA 341. In the circumstances, I do not possess that level of confidence in their appropriateness that would permit me safely to order them. 6. It follows that I reject the primary submission of the respondent, and propose to order costs on the ordinary basis. Submissions of the respondent for a gross sum costs order 1. As for the question of a gross sum costs order, the respondent invited my attention to the fact that this dispute, founded as it is on two straightforward documents of 21 June 2013 and 17 October 2013, commenced by way of a statement of claim that was filed on 12 March 2014. The quantum of the judgment entered in the Local Court on 23 September 2015 is approximately $44,000, and the quantum of the indemnity costs order in the Local Court is approximately $25,000. Since that time, the respondent has incurred (based on the affidavit evidence placed before me) total costs on a solicitor/client basis of over $79,000, and total estimated costs on a party/party basis of over $67,000. That expenditure of legal costs with regard to a debt of less than $45,000 was said by the respondent to argue in favour of bringing this dispute to an end now. 2. Secondly, it was said that the way in which the appeal was prosecuted by the appellants could lead me to infer that they would not be diligent in undertaking a sensible commercial negotiation of any costs ordered in the usual way. In other words, it was submitted that this simple dispute about a reasonably modest sum could be expected to continue for many more months, perhaps even years. 3. Thirdly, it was said that the lack of response from the solicitors for the appellants to a recent letter from the solicitors for the respondent of 26 May 2016 – itself seeking to obviate the need for the hearing about costs before me – supported that proposition. 4. Fourthly, it was said that the affidavit evidence before me would soundly satisfy me that there was nothing remarkable or inappropriate about the legal costs said to have been incurred by the respondent. In particular, it was said that the two invoices of 6 June 2016 rendered by the solicitors for the respondent (one pertaining to costs of interlocutory skirmishes leading up to the appeal, and the other pertaining to the costs of the appeal itself) are unexceptionable, and constitute sound foundations for that satisfaction on my part. 5. Fifthly and finally, it was accepted that there should be a substantive discount upon the proposed sum, even based on party/party costs, in accordance with usual practice, in order to bolster my confidence in any such order. 6. In short it was said that the time had come for final resolution of this dispute, by way of a gross sum cost order. Submissions of the appellants against a gross sum costs order 1. In resistance to a gross sum costs order, the following submissions were made on behalf of the appellants. 2. First, a significant factor for consideration with regard to a gross sum costs order is the impecuniosity of the appellants (in that any such impecuniosity could render an extended assessment process nugatory). And yet, it was submitted, there is no evidence of impecuniosity on the part of the appellants. 3. Secondly, it was said that simply because the prosecution of the appeal may have been less than optimal, that would hardly lead one to infer, now that substantive questions have been resolved, that sensible commercial decisions would not be made by the appellants. 4. Thirdly, it was said that the invoices with which I have been provided were insufficiently specific to permit me to be comfortably satisfied that a gross sum costs order based upon them would be appropriate. 5. In short, it was said that costs should be agreed or assessed in the usual way. Determination of whether to make a gross sum costs order 1. Turning to my determination, it is well established that a number of factors should inform my discretion to make such an order. They include the relative responsibility of the parties for the costs incurred; the degree of disproportion between the issues litigated and the costs claimed; the complexity of the proceedings in relation to their cost; and the capacity of the unsuccessful party to satisfy any liability for costs. 2. Here, a simple dispute about a reasonably modest sum, with regard to which the respondent has enjoyed success at all stages, has led to the expenditure of over $100,000 in legal fees by that one party. That of itself argues powerfully for resolution of the question of costs now. 3. Secondly, it is true that there is a difference between alleged dilatoriness in the prosecution of an appeal, and predicted dilatoriness in negotiating a settlement with regard to costs. But the proposition of the respondent that its letter of 26 May 2016 was unanswered, and which was seeking to obviate the need for a second hearing before me – at which two counsel were present, and written and oral submissions received, no doubt incurring yet more substantial costs – was not gainsaid by the appellants. That lends force to the submission of the respondent that resolution of the question of the costs of the appeal could take months, if not years. 4. Thirdly, it is true that there is no overwhelming evidence of impecuniosity on the part of the appellants. Having said that, it is noteworthy that the evidence shows that this whole dispute began with the appellants consulting the respondent, itself an accountancy firm that specialises in insolvency work. And in any event, I do not regard impecuniosity or the lack thereof as a determinative factor. 5. Fourthly, to my mind the invoices with which I was provided sufficiently detail the legal work done by the solicitors for the respondent during the interlocutory phases in this Court, and leading up to the hearing of the appeal. I do not accept that they needed to be more detailed than they are in order to found a gross sum costs order. 6. Fifthly, in any event, a substantial discount upon the figure contended for by the respondent provides a margin of abundant caution that bolsters my confidence that the quantum I have in mind is appropriate. 7. In short, seeking to balance all of the factors informing this discretionary question, I am of the view that a gross sum costs order should be made, thereby sparing all of the parties the further time, trouble, and money that I am satisfied would be expended in the future with regard to this straightforward dispute about a relatively modest sum. Order 1. For the foregoing reasons, I make the following order: 1. The appellants Mr Brian McGrath, Ms Natalie McGrath and PWA Engineering Pty Ltd, must pay the costs of the respondent, Rebuild Now Pty Ltd, on the ordinary basis, in the sum of $45,000. ********** 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 April 2018