Ahern v Aon Risk Services Australia Limited (No. 2)

[2020] NSWDC 236

District Court

New South Wales

Medium Neutral Citation:	Ahern & Anor v Aon Risk Services Australia Limited (No. 2) [2020] NSWDC 236
Hearing dates:	On the papers
Date of orders:	26 May 2020
Decision date:	26 May 2020
Jurisdiction:	Civil
Before:	Abadee DCJ
Decision:	See paragraph 30
Catchwords:	COSTS – application by successful party to vary costs order from the usual costs order that cost follow the event – application for indemnity costs following rejection of offers of compromise – application for fixed sum for costs – lengthy history of litigation – difficulties in quantification of appropriate amount
Legislation Cited:	Civil Procedure Act 2005 (NSW), s 98 Legal Profession Act 2004 (NSW), s 384 Uniform Civil Procedure Rules 2005 (NSW), rr 20.26, 42.15A
Cases Cited:	Ahern & Anor v Aon Risk Services Australia Limited [2020] NSWDC 159 Colquohoun v District Court of New South Wales (No. 2) [2015] NSWCA 54 Coshott v Parker (No 3) [2015] NSWSC 1195 Hamod v New South Wales and Anor [2011] NSWCA 375 Harrison v Schipp [2002] NSWCA 213 Harvey v Barton (No. 4) [2015] NSWSC 809 Hobartville Stud Pty Ltd v Union Insurance Co (1991) 25 NSWLR 358 Leach v The Nominal Defendant (QBE Insurance (Australia) Ltd) (No. 2) [2014] NSWCA 391 Leichardt Municipal Council v Green [2004] NSWCA 341 Loulach Developments Pty Ltd v Roads and Maritime Services (No 2) [2019] NSWSC 601 Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 Robb Evans of Robb Evans & Associates v European Bank Ltd (No 2) [2009] NSWCA 170 Rubino v Pineview Properties Pty Ltd (No 7) [2019] NSWSC 1031 Russo & Ors v Russo & Ors (No 4) [2016] NSWSC 1133 SAB Closed 1 Pty Ltd v Bees & Honey Pty Ltd; Bees & Honey Pty Ltd v SAB Closed 1 Pty Ltd [2015] NSWSC 1162 Shellharbour City Council v Johnson (No 2) (2006) 67 NSWLR 308 The Uniting Church v Takacs (No 2) [2008] NSWCA 172 Tim Barr Pty ltd v Narui Gold Coast Pty Ltd [2011] NSWSC 11
Texts Cited:	Ritchie’s Uniform Civil Procedure (NSW)
Category:	Costs
Parties:	Mr M Ahern (First Plaintiff) Ms E T Clancy (Second Plaintiff) Aon Risk Services Australia Limited (Defendant)
Representation:	Counsel: Ms M Castle for the Plaintiffs Ms J McDonald for the Defendant Solicitors: Fraser Clancy Lawyers for the Plaintiffs James Tuite & Associates for the Defendant
File Number(s):	2018/390039
Publication restriction:	Nil

Judgment

INTRODUCTION

1. On 1 May 2020, I published reasons[1] for dismissing an appeal against a decision by a Costs Review Panel following determinations of a costs assessor. That decision was issued in September 2018. As is apparent from My Earlier Reasons, the parties’ disputation about costs arises out of settlement of litigation commenced in the Supreme Court of New South Wales (Common Law Division), with the settlement occurring in February 2015. By the terms of the final orders disposing of that litigation, the defendant was ordered to pay the plaintiff’s costs of that proceeding, as agreed or assessed. Since then, the parties have engaged in a long, drawn-out battle as to how much the plaintiffs should recover for costs from the assessment process.

   1. Ahern & Anor v Aon Risk Services Australia Limited [2020] NSWDC 159 (‘My Earlier Reasons’).

2. In this Court, the plaintiffs appealed under s 384 of the Legal Profession Act2004 (NSW), as that provision was relevantly applicable, on a decision in relation to a matter of law. The appeal failed.

3. The defendant, as the successful party, sought opportunity to be heard to vary the costs order that the Court made on 1 May 2020, which was made in accordance with the usual order, that the plaintiffs pay the defendant’s costs of the proceeding on the ordinary basis.

4. The defendant now seeks variations to that order, in two principal respects.

5. First, it seeks a partial order for indemnity costs on the basis of the plaintiffs’ refusal of two offers of compromise made respectively on 21 August 2019 and 20 April 2020. Both of those offers were, in substance ‘walk away’ offers.

6. Secondly, the defendant seeks an order by the Court to fix a specified gross sum for costs, under s 98(4) of the Civil Procedure Act2005 (NSW), to reflect costs orders made by the Court on 20 and 22 April 2020 and 1 May 2020.

APPLICATION FOR PARTIAL ORDER FOR INDEMNITY COSTS

Offers of compromise and ‘walk away’ offers

7. In opposition to this order, the plaintiffs contend that both offers of compromise were invalid, for not complying with requirements of the rules (r 20.26(5) of the Uniform Civil Procedure Rules 2005 (NSW) (‘UCPR’)).

8. In my view, it is unnecessary to determine the validity of either offer, involving, as it necessarily would, close consideration of the timing and circumstances in which each respective offer was served. I am inclined to reject this particular application on the basis that, even on the premises that the offers were formally valid, and even if r 42.15A was engaged, the Court would nonetheless, ‘otherwise order’ under r 42.15A of the UCPR.

9. Both offers of compromise substantially provided for the appeal to be dismissed with no order as to costs. They were both, in other words, ‘walk away’ offers.

10. The underlying purpose of rules offers implicitly requires that an offer reflect some real element of compromise. As was said by Giles J (as his Honour then was) in Hobartville Stud Pty Ltd v Union Insurance Co (1991) 25 NSWLR 358 at [368], to ‘compromise’ means that a party gives something away. His Honour also recognised that in particular cases, it may be difficult to decide whether or not a purported offer of compromise is truly a compromise. In Shellharbour City Council v Johnson (No 2) (2006) 67 NSWLR 308, Hunt AJA (with the agreement of Beazley JA and Tobias JA) approved of these observations of Giles J in Hobartville Stud.

11. In Leach v The Nominal Defendant (QBE Insurance (Australia) Ltd) (No. 2) [2014] NSWCA 391, McColl JA indicated (at [48]) that it was not possible to be exhaustive about what circumstances might make it exceptional for the Court to exercise its discretion to ‘otherwise order.’ Whether there is a real element of compromise has to be determined objectively, but also prospectively; at the time it was made; and not with the benefit of hindsight: Leach (No. 2) at [42]. Her Honour accepted that the reasonableness of the offeree’s rejection is a relevant, but not determinative consideration: The Uniting Church v Takacs (No 2) [2008] NSWCA 172.

12. The offers of compromise were ‘walk away’ offers. Courts are usually circumspect, when considering whether an offer contains a genuine element of compromise when the only element of compromise is to costs: see, for example, Leichardt Municipal Council v Green [2004] NSWCA 341 per Bryson J at [59]. It is well established that the offer of compromise procedure under r 20.26 should not be used simply as a strategy to trigger an ultimately successful party’s automatic award of costs on an indemnity basis.

13. However, it is also well-established that ‘walk away’ offers may be the subject of valid offers of compromise. That possibility is expressly recognised in the rules themselves: see r 20.26(3)(a)(1). Quite apart from the terms of that rule, ‘walk away offers’ may engage costs protections under Court rules as they involve a defendant foregoing the possibility of obtaining a favourable costs order, which may be a valuable entitlement: Loulach Developments Pty Ltd v Roads and Maritime Services (No 2) [2019] NSWSC 601 per Leeming JA at [10]. In this case, the defendant has adduced evidence to suggest that, prima facie, it incurred very considerable costs, on interlocutory matters, up to the respective dates when the offers were served.

14. However it has been said that, for ‘all or nothing cases’, the offeree’s claim would ‘have to approach something of the character of being frivolous or vexatious’ to justify an order for indemnity costs: Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 at [29]-[32]. If it were otherwise, the public policy of encouraging settlement would rarely be served in an ‘all or nothing’ case: Robb Evans of Robb Evans & Associates v European Bank Ltd (No 2) [2009] NSWCA 170 per Basten JA (with whom Campbell JA agreed) at [18]. For an all or nothing case, parties with reasonably arguable cases should not be deterred from pursuing those cases on pain of suffering an indemnity costs order after a walk away offer is served if they lose. The position is different, say, to a damages claim where there may be varying degrees of success, in terms of the quantum of damages award obtained, and the policy underlying the rules is to encourage parties to engage in a realistic self-assessment of prospects of what quantum of damages might be recovered in the event that liability is established.

15. In Regency Media, the Court of Appeal said that if an order for indemnity costs could be made against an unsuccessful offeree in a commercial case involving a nice point of contractual construction, indemnity costs orders could become the norm in litigation of that type. I consider the same point holds in this type of case, which is, analogous to judicial review of an administrative decision: if one or more of the (four) grounds of error were made out, the plaintiffs would have been successful, to the extent of having the costs dispute remitted to the costs review panel to be determined in accordance with law, in the light of the reasons. This type of case, in my view, also fits into the ‘all or nothing’ paradigm. So too, in this case, the purpose of the special order of an indemnity costs – of encouraging settlement – order would not be fulfilled if the offeree was subject to an indemnity costs order simply because it lost.

16. Although I consider that the ultimately unsuccessful grounds of appeal advanced by the plaintiffs had variable degrees of force, none of them could be said to be inarguable, let alone frivolous or vexatious. Nor was there any other delinquency usually found in cases that have seen such orders imposed (Ritchie’s Uniform Civil Procedure (NSW) [42.5.7]).

17. In my opinion, even if I were to assume in the defendant’s favour that the rules offers complied with the rules so as to be valid, and r 42.15A was engaged, I would have determined that it was appropriate to ‘otherwise order’, with the result that the application for a partial order for indemnity costs is rejected.

APPLICATION FOR FIXED SUM COSTS ORDER

Principles

18. Section 98(1) of the Civil Procedure Act emphasises that costs are in the discretion of the Court. Section 98(4)(c) specifically authorises the Court, in its discretion, to order that the party to whom costs should be paid is entitled to a specified gross sum, instead of assessed costs: Hamod v New South Wales and Anor [2011] NSWCA 375.

19. The authorities indicate a range of considerations that the Court may take into account when making such order. These generally include the complexity of the proceeding in relation to cost; the degree of any disproportion between the issues litigated and the costs; the relative responsibility of the parties for the costs incurred and the capacity of an unsuccessful party to satisfy any costs liability. The principal purpose of this order is to avoid the expense, delay and aggravation of further protracted litigation arising from the assessment process: Hamod v State of New South Wales and Anor at [816]-[817].

20. The defendant (applicant) also cites the line of authority that holds that such order may be particularly apt where the Court forms a view, based upon the prior experience, that any further costs assessment is likely to be unduly protracted and add to costs unnecessarily: Harvey v Barton (No. 4) [2015] NSWSC 809; Coshott v Parker (No 3) [2015] NSWSC 1195 and Russo & Ors v Russo & Ors (No 4) [2016] NSWSC 1133.

21. But the Court must be cautious about making such order: it must be satisfied that making the order will be fair to the unsuccessful party: Harrison v Schipp [2002] NSWCA 213 and [22]. It must have a measure of confidence in arriving at an appropriate sum in making such order and, even then, it is common for the Court to impose a discount: Hamod at [81]-[814]. A merely estimated or general total or claimed costs may not be sufficient in providing a proper basis for such order: Colquohoun v District Court of New South Wales (No. 2) [2015] NSWCA 54 at [7]. In Tim Barr Pty ltd v Narui Gold Coast Pty Ltd [2011] NSWSC 11, Barrett J (as his Honour then was) emphasised that although the Court, when asked to make a fixed order is not emulating a costs assessor, but is making a ‘broad brush’ estimate, there must still be enough before the Court to form some kind of view as to what might be recovered on an assessment ([21]), and that involved the Court being informed by the criteria for costs assessment ([44]), as well as by the pleadings, the complexity of the issues raised on the pleadings, interlocutory processes, preparation for hearing and attending the hearing ([45]).

22. In SAB Closed 1 Pty Ltd v Bees & Honey Pty Ltd; Bees & Honey Pty Ltd v SAB Closed 1 Pty Ltd [2015] NSWSC 1162, Stevenson J rejected this type of application on the basis of the absence of an arm’s length objective assessment from an independent costs assessor.

Whether a fixed sum order should be made

23. Since February 2015, the parties have fought tooth and nail over the costs consequences of the Supreme Court litigation, following settlement. Unusually, they agree, in principle, to the desirability of the Court making a lump sum order for costs of this proceeding. But they have very different views as to what that amount should be.

24. I am also attracted, in principle, for a gross fixed sum to be ordered in this case. There has been protracted disputation over costs for many years since the settlement of the substantive dispute in 2015. Even during the pendency of this proceeding, a very considerable outlay of costs has been incurred by the parties in the exchange of correspondence over interlocutory skirmishes, including a dispute about the competency of the appeal (having regard to rules of service) culminating in late applications for the adjournment of the hearing concluded earlier this month. The Court is informed that considerable resources were outlaid to prepare appeal books – the plaintiff had prepared three lever arch folders – and extensive written submissions before the hearing; notwithstanding that the nature of the appeal was confined to correction of alleged decisions relating to matters of law. It is not insignificant in this regard, that as I found in My Earlier Reasons, to a not insubstantial degree, at least some of the grounds for appeal agitated by the plaintiff were, in substance, attacks on the merit of the determination of the costs review panel [2] . Inherently, that involves additional cost.

    2. For example, see [79] and [89] of My Earlier Reasons.

Difficulties in the quantification of fixed sum order

25. Attracted as I am to making a definitive order putting an end to the issue, regrettably, I do not consider that the Court has been furnished with sufficient information to enable it to quantify the order with a measure of confidence; even on a broad-brush approach, and to do so in a way that is fair to the plaintiffs.

26. This is because even when the nature of the proceeding is taken into account – essentially a legal review of the decisions appealed from – the parties significantly diverge on the question of the reasonable costs incurred by the defendant in the different stages of the proceeding. This includes even the costs of the interlocutory motions. Further, as the plaintiffs point out, no proposed draft itemised bill has been prepared on the defendant’s behalf (it might be added, by someone independently from the defendant[3] ) that would enable the Court to deduct for unreasonable actual costs which, the plaintiffs contend, the authorities[4] recognise as the appropriate first step that a Court should embark upon in a lump sum assessment of party and party costs. Thus, the Court has no means of evaluating the reasonableness, for example, of the time spent by solicitors and Counsel respectively, in working on the appeal. No tax invoices from the solicitor or Counsel have been appended.

    3. Tim Barr Pty Ltd at [26], SAB Closed 1 Pty Ltd at [10].

    4. Rubino v Pineview Properties Pty Ltd (No 7) [2019] NSWSC 1031.

27. Although there is, in Ms Scott’s affidavit, a general itemisation of the work performed in relation to the interlocutory arguments in this proceeding, this information was relied upon to support the application for indemnity costs; with a view to proving that much cost had been incurred up to the time of the offers. There is also a table in Ms Scott’s affidavit (in paragraph 19), that itemises the actual costs incurred by the defendant’s team of lawyers, on the motions, and the proceeding generally. In the absence of supporting material, there is nothing to corroborate what, to take one example, work was done by Ms Scott, the partner of the firm representing the defendant, in the course of the 85.3 hours she deposed to having worked on the appeal proceeding up to judgment (as distinct from her work on the motions).

28. There are also not insubstantial differences in the appropriate level of discounts between two experienced solicitors.

29. In the circumstances, the principled approach to these issues is not for the Court, on the basis of the information presently before it, to pluck a figure somewhere between the positions respectively advanced by the parties. The issues should, in other words, be considered by technically proficient and experienced costs assessors in the event that the parties, despite all that has gone before, are still unable to resolve the matter in a commercially sensible way.

ORDER

30. In the result, the Court refuses the defendant’s application to vary the costs order made on 1 May 2020, with the qualification that that general costs order should be varied so as to make it clear that the defendant should pay the plaintiffs’ costs of this application to vary the order for costs.

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Endnotes

Decision last updated: 26 May 2020