ACN 068 691 092 Pty Ltd v Plan 4 Insurance Services Pty Ltd

[2014] SASC 39

SUPREME COURT OF SOUTH AUSTRALIA

(Civil)

ACN 068 691 092 PTY LTD & ANOR v PLAN 4 INSURANCE SERVICES PTY LTD & ORS

[2014] SASC 39

Reasons of Judge Withers a Master of the Supreme Court

20 March 2014

PROCEDURE - COSTS

INDEMNITY PRINCIPLE

Seal & Seal v Malaugh Holdings (No 2) Pty Ltd & Ors (No 2) [2008] SASC 223; Amendola & Anor v Olma (unreported, Master Rice, District Court Judgment No 176 of 2005), applied.
Trevorrow v State of South Australia (No 7) [2008] SASC 5; Wentworth v Rogers (2006) 66 NSWLR 474; Legal Costs South Australia Norman; Law of Costs Dal Pont, 3rd ed, considered.

ACN 068 691 092 PTY LTD & ANOR v PLAN 4 INSURANCE SERVICES PTY LTD & ORS
[2014] SASC 39

1. JUDGE WITHERS. This matter was an unsuccessful appeal to the Full Court of the Supreme Court against a judgment of a District Court Judge.  The Court dismissed the appeal on 22 March 2012 – see ACN 068 691 092 Pty Ltd & Anor v Plan 4 Insurance Services Pty Ltd & Ors [2012] SASCFC 25.

2. The four respondents to the appeal obtained an order that the appellants pay them their costs of and incidental to the appeal.  Since that time the respondents have submitted short form claims for costs to which the appellants have responded.  The claim by the third respondent has been resolved.  The claim by the fourth respondent has led to an application by the appellants filed on 18 October 2013 that the respondents provide to the appellants a copy of the accounts that they have rendered to their clients and a copy of their respective fee agreements.  What was intended was an order that the respondents disclose to the appellants copies of accounts received by them from their solicitors in respect of their appeal costs.  Various other relief was also sought – see interlocutory application FDN 25.  In making that application the appellants rely on the indemnity principle. 

3. The solicitor for the fourth respondent has filed a responding affidavit to which she has exhibited a copy of the fee agreements for both an interstate firm that acted for the fourth respondent, and the fee arrangements for her own firm.  Both sets of solicitors were involved in defending the appellants’ appeal.  In the third exhibit to her affidavit, or Court document FDN 30C, the Adelaide solicitor for the fourth respondent provides a copy of a letter forwarded by her to the solicitor for the appellants in which she provided to the appellants a copy of the fee accounts rendered to the fourth respondent both by the interstate solicitors and by her firm, but declined to provide a copy of the schedule of attendances appended to the original of each of those accounts.  In that letter the solicitor for the fourth respondent noted that “such schedules would include various attendances which are not the subject of a claim for costs by way of the fourth respondent’s Short Form Bill of Costs …”. 

4. The appellants have not accepted this disclosure as sufficient and persisted in their application for an order that they be provided with a full copy of the fee accounts rendered to the fourth respondent. 

5. The matter was argued on 31 January 2014.  Written submissions were provided both by the appellants (FDN 34) and by the fourth respondent (FDN 37). 

6. The appellants asserted that the indemnity principle was more than a global cap.  The indemnity rule is described in Law of Costs, Dal Pont, 3rd edition, at 161 [7.5], when the learned author said:

   7.5     When a court makes a costs order against a party – most commonly an unsuccessful litigant pursuant to the ‘costs follow the event’ principle – it aims to provide the opposing (successful) party some indemnity (but no more) for the legal costs the latter has been required to incur in vindicating or upholding his or her rights in court (hence often termed the ‘indemnity rule’).  A leading statement of the theory behind the indemnity rule is found in the judgment of Branwell B in Harold v Smith, who said:

   Costs as between party and party are given by the law as an indemnity to the person entitled to them; they are not imposed as a punishment on the party who pays them, nor given as a bonus to the party who receives them.  Therefore, if the extent of the damnification can be found out, the extent to which costs ought to be allowed is also ascertained.  Of course, I do not say that there are not exceptional cases in which certain arbitrary rules of taxation have been laid down, but as a general rule costs are an indemnity, and the principle is this, find out the damnification, and then you find out the costs which should be allowed.

   It follows that the aim of awarding costs as between the parties to litigation (thus termed ‘party and party’ costs) is not punitive, but to compensate the successful party for the legal costs incurred by reason of the proceedings.  A remaining substantial burden of costs in a successful party could, as remarked by the High Court, ‘otherwise render its success nugatory’.  The likely exposure of an unsuccessful party to a double costs liability – to pay his or her own lawyers’ costs as well as indemnify the successful party for the latter’s costs – moreover serves to ‘instil in a party contemplating commencing, or defending, litigation a sober realisation of the potential financial expense involved’.  [Citations omitted.]

7. Gray J had cause to consider this principle in the matter of Trevorrow v State of South Australia (No 7) [2008] SASC 5, where his Honour was considering the question of costs in an action where it was argued that there was no liability on the plaintiff to pay costs to his own solicitors. His Honour found that there was an implied obligation on the plaintiff to pay his solicitors for costs and that costs should be awarded in his favour. However, after reviewing authorities relevant to the indemnity principle, his Honour summarised them and included the following:

   [17] From these authorities, the following principles can be discerned of relevance to the present proceedings:

   -the indemnity principle is the guiding principle concerning the recovery of costs;

   - the indemnity principle allows for an indemnity if there is a liability of the claimant to his or her solicitor;

   -…

   -the indemnity principle is a flexible principle, designed to allow for a just and fair result.

8. In relation to the last finding of Gray J, I note that he referred to a decision of Santow JA in Wentworth v Rogers (2006) 66 NSWLR 474, when he noted in [15] of his decision as follows:

   [15] … Santow JA took the view that the indemnity principle should be applied with flexibility rather than as a rigid rule.  In particular he considered that the indemnity principle was capable of accommodating conditional fee agreements:[1]

   [1]    Wentworth v Rogers (2006) 66 NSWLR 474 at [50], [54].

9. The issue of debate in the present case is whether or not the indemnity principle should be applied by way of a global cap or whether it may have further application.  In Norman, Legal Costs South Australia, the learned author (at [1280]) found a number of principles to apply.  Those principles included:

   ·    The indemnity principle is a flexible principle, designed to allow for a just and fair result.

   ·    In some cases (in the exercise of the court’s discretion) it will be appropriate to apply the indemnity principle not just on a global basis but to the specifically agreed rates and in some instances on an item by item basis.

   ·    In determining the quantum of the indemnity (the global cap) it is necessary to take out of the plaintiff’s account those charges where the client obtained no order for costs or where costs are not payable or on some other appropriate basis.

10. In the case of Seal & Seal v Malaugh Holdings (No 2) Pty Ltd & Ors (No 2) [2008] SASC 223, I respectfully adopted the approach taken by District Court Master Rice in the matter of Amendola & Anor v Olma, District Court Judgment No 176 of 2005 in Action No 730 of 2001, when the learned Master said (at [126]):

    [126] In my view the plaintiff’s position is correct as a matter of principle namely that the indemnity principle is satisfied if the amount allowed on taxation does not exceed the quantum of costs paid or payable by the client for work performed and properly claimable pursuant to the costs order in pursuing the action.  In assessing the total costs payable for the purposes of the indemnity principle and the global cap account cannot be taken for costs paid or payable for work done outside the costs order of the Court.

11. At [36] in Seal & Seal v Malaugh (supra) I said:

    [36] I respectfully agree with that analysis.  There may be cases where it is appropriate to consider more closely the invoices issued by the solicitor.  One such case may be where the charges are for amounts or at rates that appear to be unreasonably high such that any agreement pursuant to which they are charged might well falter on a challenge by the client.  In those circumstances the indemnity cap might be reduced.  Other circumstances may occur where the adjudicating officer considers it appropriate to take that course in the interests of justice.  …

12. In this case solicitors interstate and solicitors in this State, both representing the fourth respondent, rendered accounts to the fourth respondent over a period from June 2011 to May 2012.  No particular difficulty would be encountered by the fourth respondent to disclose the schedules attached to those accounts which set out the work performed.  However, it was argued on its behalf that this detail was of no relevance as the indemnity principle applied on a global basis rather than on an item by item approach.

13. That assertion is generally correct.  However, there is in this matter a prospect of duplication of work by the interstate solicitor and the local solicitor and of the accounts containing items of work not relevant to this action (as identified by the local solicitor for the fourth respondent in the letter of 27 November 2013). This may impact on the amount of the cap that should be set.  The purpose of disclosing the detailed accounts is not limited to identifying the actual costs charged for each activity on the file, but includes identifying any issues of duplication and any work external to the action that should not be included in fixing the cap.  In my view, the interests of justice in these circumstances mandate disclosure of those fee schedules annexed to the accounts in this action.  Any confidential items can be redacted if need be.

14. The consequence of this ruling may be, or may not be, a reduction in the global cap.  This may then have an impact on the amount allowed on an adjudication of the fourth respondent’s costs on the Court schedule.  It will not, in my view, provide a fertile ground for the appellants to compare costs charged for each item of work and to argue that there should be a reduction if the amount charged is less than the scheduled fee for that particular item.  The limited purpose of the disclosure is to identify whether or not the cap set by the addition of those various accounts should for proper reason be reduced.

15. For the foregoing reasons, there will be an order on interlocutory application FDN 25 that the fourth respondent provide to the solicitors for the appellants within 14 days a full copy of the accounts rendered by each of their solicitors to them.

16. I will hear the parties as to costs if need be, but my preliminary view is that costs should follow the event and that the appellants should have the costs of and incidental to interlocutory application FDN 25 so far as this issue is concerned.

17. I certify fit for counsel.