The Elephant in the Court Room

The New County Court Scale, cost orders and the Slip Rule

It's an appropriate time to consider the application of the slip rule to vary cost orders. This is in light of the new County Court scale which includes a scale of counsels fees and by implication, provides that the Cost Court has no discretion in relation to counsels fees where costs are payable pursuant to an order of the court.

It's long been the case in the County Court, that the Costs Court had no discretion in relation to counsels fees where they  were payable pursuant to an order of the trial judge. The new scale extends this to any order of the court, whether final or interlocutory, and will include circumstances where orders are made by consent.

The principle Victorian case in relation to the application of the slip rule on cost orders is Sands & McDougall (Wholesale) Pty Ltd (in liq) & Anor v Commissioner of Taxation.

In considering the applicaiton of the rule in circumstances where a party was arguing the application of order 26 entitled it to solicitor client costs, Brooking JA stated:

"This is the impossibility of saying, with the necessary degree of conviction, that an award of solicitor and client costs would have been made had the matter been drawn to the attention of the Court of Appeal."

The bar is high, and it will not be enough to simply argue that it was an oversight not to seek certification of counsel's fees.  

The particular question of variation of a cost order to accommodate counsels fees, where there was a consent order, was considered in English case of Somerset v Ley [1964] 1 WLR 640, which was cited at length in M v. W (No. 2) [2009] QDC 344.

The plaintiffs were executors of an estate.  In proceedings involving the estate, consent orders were made that the plaintiffs’ costs should be taxed and paid out of the residuary estate of the testator, but there was no express provision for the fees of senior counsel who had been engaged on behalf o the plaintiffs. The taxing master held that the relevant rules required the order to expressly allow for senior counsel's fees, otherwise they could not be allowed on taxation.  The plaintiffs appliedto the court, asking either that a certificate for those costs should now be granted, notwithstanding that it had not been asked for at the hearing, or that the order should be amended under the slip rule to provide for them.

It was held that, the order having been a consent order, it could only be amended under the slip rule to include a provision for the fees of leading counsel if the agreement between the parties upon which it had been based had contained, expressly or by implication, a term to the effect that they should be provided for.

Cross J said at 646-47:

 “I think it is quite clear that none of the lawyers who prepared and approved the minutes and were present at the joint consultation had this point in mind. In those circumstances, I think that the test of the problem before me is this: supposing I, when the case came before me, had thought of the point and had played the pat of the officious bystander postulated by Mackinnon L.J. and had said: “What about the costs of the plaintiffs’ ‘leading counsel?’, what would the reaction have been? I have no doubt whatever that counsel for the plaintiffs would have said: ‘Of course they are to be included.’ What would have been the reaction of counsel for the infant? Mr Wilmers is in a difficult position, because he is asked to throw his mind back to what would have happened two years ago on a hypothesis which was not in fact realised, but he says, and I accept this completely, that he is sure that he and Mr Arnold, whatever their own views might have been, would have felt obliged to consult the guardian ad litem as to whether or not the words, “including the fees of ‘leading counsel’ should go into the order. Mr Wilmers said that he remembered vividly that it had not been at all easy to bring the guardian to the point of agreeing to a compromise at all, and that neither counsel nor their instructing solicitors would in the circumstances have taken it on themselves to vary the agreed terms by a hair’s breadth without her consent.

 So one has to ask what was her state of mind. Here I am in a difficulty, because no formal evidence has been put before me as to what her state of mind was. She has not sworn an affidavit or been examined but certain points have been conceded by Mr Wilmers. It is conceded that she knew that leading counsel had been instructed on behalf of the plaintiffs, and I think it is conceded (at all events, I shall assume) that she had no personal knowledge of paragraph 2(3) and did not interpret that she had not had put before her any estimate of the costs which included specifically any fees for leading counsel.

 I think that I am justified in assuming in favour of the plaintiffs that had she been asked before the order was drawn up: “Do you think this order will include leading counsel’s fees?”, she would have said: “I think it will. They have had leading counsel. The costs will be taxed by the court, but I presume they will include something for Mr Peter Foster.” That is what I think she would have said.

 But does that carry the plaintiffs far enough? If this point had been specifically mentioned to her, if Mr Arnold and Mr Wilmers had come to her and said: “Look here, the formula which we have put to the other side and which they have agreed may not include the costs of leading counsel, and they want an express reference made to them,” is there anything which would have prevented her, if she had been disposed to be difficult about the matter, from saying: “Well, I do not know about that. If that formula will not include the costs of leading counsel, that is just too bad. But I am not disposed to budge a hair’s breadth from what I have agreed to.” With the best will in the world – my sympathies, as I have indicated, are with the plaintiffs in the matter – I find it impossible to say that she could not, if she so desired, have taken that line. Therefore, I am, with regret, obliged to refuse the application. I say ‘with regret’ because I cannot help thinking that if the matter had been raised in October 1961, Mr Arnold and Mr Wilmers would probably have advised the guardian ad litem that it was in the spirit of the arrangement that this addition should be made to the order, and it may be that at that date, under pressure from them, and perhaps with a little help from me, she would have agreed to that addition. Unfortunately, that was not done, and now Mr Wilmers tells me that he and his instructing solicitors have done their best to induce the lady to agree, but that she will not now do so. So, as I say, with regret, I feel obliged to refuse the motion.”

Bills in taxable form

I have recently been looking at the circumstances in which a party can be required to provide a bill in taxable form.  The decision in Pacific Indemnity Underwriting Agency Pty Ltd v Maclaw No 651 Pty Ltd & Anor  is a decision of the Court of Appeal which, whilst its principal focus was the meaning of "reasonable costs" in the context of litigation arising out of an insurance policy, one of the subsidiary issues was the circumstances in which a bill of costs in taxable form should be required.

The case was an appeal from a VCAT decision, where the award of "reasonable" costs had been held to mean the costs which the party was actually paying to its lawyers.  No bill in taxable form had been delivered, but simply a schedule detailing the time recorded.  At first instance, the Member had refused an application seeking a bill in taxable form.

The Court of Appeal took a different approach to the interpretation of the costs order, but in any event, in considering the circumstances in which a bill of taxable form should be provided stated as follows (per Ormiston J) at paragraph 86: 

"Generally speaking, moreover, even where costs are to be assessed or taxed on a solicitor/client or indemnity basis, that is no excuse for refusing to deliver a bill, unless the parties agree to the contrary or unless court or tribunal directs to the contrary. Every form of taxation may require consideration of items of detail, although the basis of taxation may qualify the kind of bills that should be delivered, as may specific rules or regulations on that subject.

In ordinary litigation, whether or not conducted in a tribunal, prima facie a bill should be delivered for consideration by opposing party and by court or tribunal. Even in the case of costs taxed on an indemnity basis, it is open to the unsuccessful party to object that particular items are unreasonable, just as on a solicitor/client basis it is for the judgment creditor to establish that items are reasonable, howsoever that may be achieved in particular circumstances... What is more important is that in considering costs below there was a failure to distinguish between the reasonableness of the rate charged per hour or the like, and the reasonableness of the items of work performed and the extent of time taken to perform them, to touch only on matters affected by hourly rates of payment. A bill is ordinarily required so that the parties and the court or tribunal can properly ascertain what properly has been done in the necessary enforcement of a party’s rights, so that particular items may be taxed off if they do not satisfy the relevant criterion. It is sufficient to say that a bill should have been directed in the present case." 

The decision is important in the context of indemnity cost orders, where occasionally a party will simply seek to rely on a printout of time charged (as was the case in Maclaw).  The issue really becomes one of whether a time printout is a sufficiently itemised to constitute a taxable bill.

The following passage (per Mann J) in Mallesons Stewart, Stawell and Nankivell v Williams  is often cited with approval in cases considering the delivery of itemised bills .

Courts have repeatedly held that a bill of costs must contain such details as will enable the client to make up his mind on the subject of taxation, and will enable those advising him to advise and effectively as to whether taxation is desirable or not." 

The adequacy of a bill must be considered in light of the level of the client's sophistication and commercial experience and would it include "any agreement reached between the parties as to the basis of charge."  - Re Walsh Halligan Douglas's Bill of Costs (1990) QDR 288 at p 294.

Further, the client or party seeking further particulars in the bill must show that there is not a sufficient information, not simply on the face of the bill, but also the other information available to him, to enable those advising him to provide proper advice.  in other words, if the client or party had available to him through other means sufficient information to take an informed view on the bill, it will not be sufficient that an uninformed person would find the bill was not sufficiently particularised.  Ralph Hume Gary v Gwillim  (CA) [2002] EWCA Civ 1500; (2003) 1 WLR 510.

In the context of a practitioner/client dispute this question was considered in Clayton Utz Lawyers v P & W Enterprises Pty Ltd [2010] QDC 508.

In the Clayton Utz case, the proceedings before the court were an application by Clayton Utz under the Legal Profession Act 2007 (Qld) for assessment of its own legal costs.  The question for the court was whether the bills of costs, which appear to be detailed to the extent that they set out the individual time records, constituted "itemised bills" the purpose of the Legal Profession Act.   The defendant argued that many items charged in the bills were grouped items of work with a single lump sum charge and in respect of those it was not possible for the defendant to assess whether or not the charges for the individual items were proper.  The defendant argued that a bill must be sufficiently particularised to enable a client to "know the grounds on which it disputes the amount or liability to pay any particular item of costs".

Many of the descriptions in the bills of costs with very generalised with examples being given such as "various activities including letter to Dibbs Barker re Mitchell Brandtman report; prepare response to show cause notice; peruse affidavits and email to counsel re same."

Reid DC J held that such generalised descriptions would not enable "a reasonably experienced litigation solicitor" with the benefit of input from the client, to form an opinion as to the reasonableness of the work performed.  His Honour ordered the delivery of properly particularised bills.

Cost Implications on dismissal of a counterclaim or third party claim

We've recently come across an inconsistency in the Supreme, County and Magistrates Court Rules, with implications that litigators should be alert to.

Order 63A.16 of the County Court rules provides that dismissal of a counterclaim or third party claim carries costs with it, unless the court otherwise orders. No such provision exists in the Supreme Court Rules.

The reason that litigators should be aware of this rule is that there are many instances where such claims are dismissed without adjudication on the merits, or because they are settled. In such circumstances, consideration may need to be given as to whether an order should be sought, specifically providing that no costs are payable, or awarding costs to the claimant.

On the other hand, because of the absence of the provision in the Supreme Court Rules, when finalizing a matter, consideration must always be given as to the appropriate orders to be sought regarding the costs of a counterclaim or third party claim.j

Dangers of separate components in Calderbank offers

A recent Federal Court decision considered the reasonableness of rejecting offers made.  Nothing unusual about that, but the unusual aspect of the decision was the consideration of the reasonableness of rejecting the individual components of an offer.

The proceedings involved claim under the Fair Work Act, the claimant seeking damages arising from contravention of the Act.  Under the Fair Work Act, costs are generally not awarded.  The applicant sought costs, relying on the respondents rejection of a series of without prejudice offers as evidence of unreasonable behaviour.  The court looked at the individual components of the offers, and considered the outcome against each of those individual components.  It found that, although the applicants' offers were less than the compensation awarded, some of the individual components were greater than what was awarded and in those circumstances it was reasonable for the respondent to decline that component of the settlement offer.

The particular component considered in this case was costs which have been thrown away.  The case highlights the difficulty of seeking a fixed amount for costs, are a cost order has been made and a party is seeking to compromise that order as part of an offer of settlement.  It would be necessary to establish the reasonableness of the amount of the offer relating to that cost component.

Third party payers - a warning to commercial lawyers!

The Legal Profession Acts now enacted in the majority of Australian states, have the concept of "third party payers", of which there are two types, associated and non-associated.

Associated third party payers are those who are not the client of the law practice, but have a direct responsibility to the law practice to pay the client's costs.  Examples are insurers, companies paying the costs of an employee or director, a father paying the costs of a child.

Non-associated third party payers, do not owe a responsibility to the law firm, but rather have a responsibility to the client to pay part or all of the client's legal costs.  Commonly, this liability to pay costs arises out of contractual obligation, examples being mortgages, leases, and other commercial documentation.

Yet it appears that the draftspersons of such documentation fail to take the provisions of the Legal Profession Acts into account when drafting the costs clauses.  This is highlighted in the decision of 

The simple facts were that Boyce (law firm) was seeking to recover legal costs from McIntyre (non-assocaited third party payer) who was responsible for payment of Boyce's client's "reasonable legal costs" pursuant to the terms of a lease between client and McIntyre.

There was a cost agreement between Boyce and client which provided for paymet of a fixed fee of $3000, and Boyce advised McIntyre that the estimated legal fees were $3000.

McIntyre sought to have the fees assessed and on assessment, the cost assessor held that, as there was no cost agreement between Boyce and McIntyre, the costs should be assessed on the basis of what was "fair and reasonable" and not by reference to the provisions of the cost agreement.  This approach was affirmed both by the Costs Review Panel and by a single judge of the NSW Supreme Court. 

In jurisdictions where there are scales of costs (i.e. all other States and Territories other than NSW), the costs would be assessed by reference to the relevant scale of costs or remuneration order.  This is something which needs to be addressed by the draftspersons of commercial contracts.  It may be necessary to have the third party payer enter into a cost agreement with the law firm, but this then makes them an associated third party payer, with all the associated rights of a client to disclosure, to negotiate a cost agreement and to challenge costs.

Many clients could be substantially out of pocket due to the differential between actual costs and what would be recoverable on a fair and reasonable, or scale basis.

Perfection is an aspiration not a goal

Perfection is an aspiration not a goal - should be a standard direction for many clients to their lawyers. Yet many lawyers, particularly young lawyers would not understand what it means.  To put it another way, "you don't need a Rolls-Royce when a bicycle will do", a quote from Rio Tinto's General Counsel.

It's all about proportionality - whilst in a perfect world, you would interview every potential witness, review every document, not matter how limited the relevance, and conduct endless interlocutory applications to compel the other party to also produce every shred of evidence, it is a rare matter where this level of work is proportional to the the issues involved.

In Australia, this statement is also now the mantra of the judicial system.  Judges and other judicial administrators have recognised that the system cannot support a perfect world.  Courts do not have the resources to allow every case to be run as the "perfect" case.  Discovery is becoming so enormous, that judges must intervene and limit the categories of documents to be produced.  In the Federal Court, the "rocket docket" recognises that parties can't have unlimited time to get their acts together in compiling and examining evidence.  The combined goals of ensuring parties get a fair hearing, whilst also ensuring disputes are finalised in a speedy fashion, mean that no case will be conducted as the perfect case.

So, it's a matter of focusing on what it most important and for clients, on where there money is best spent. Unless you plan how you are going to conduct the matter, and therefore what work you will focus on, you are in danger of doing the following:

• Reinventing the wheel (a recent example - I was asked to advise on cost orders to be sought, and pointed out that I had given exactly the same advice, on the same matter, about 18 months ago)
• Chasing rabbits down burrows but not the rabbit who is the target (example - researching a point of law that is not in issue)
• Finding the weakness in the evidence or the law too close to trial and only after very considerable costs have been incurred  

Case planning and early case assessment, when undertaken which a clear understanding of what the client sees as necessary for the case, are what is required.