Bassal v Savills (NSW) Pty Limited (No 2)

[2020] NSWSC 27

Supreme Court

New South Wales

Medium Neutral Citation:	Bassal v Savills (NSW) Pty Limited (No 2) [2020] NSWSC 27
Hearing dates:	On the papers (last submissions filed on 18 September 2019)
Decision date:	03 February 2020
Jurisdiction:	Common Law
Before:	N Adams J
Decision:	(1) Order 2 made on 24 July 2019 is varied such that the plaintiffs are to the pay the defendant’s costs of these proceedings on an ordinary basis up to 30 September 2014 and thereafter on an indemnity basis.  (2) Each party is to pay its own costs of this motion.
Catchwords:	COSTS – joint venture agreement for construction of outlet shopping centre – where offer of settlement – indemnity costs – whether appropriate to make a gross sum costs order
Legislation Cited:	Uniform Civil Procedure Rules 2005 (NSW), Part 42, r 42.1, r 42.15A, r 42.5, Civil Procedure Act 2005 (NSW), s 98(1)(a), s 98(4)(c), s 101(4)
Cases Cited:	Bassal v Savills (NSW) Pty Limited [2019] NSWSC 696 Coshott v Parker (No. 3) [2015] NSWSC 1195 Fountain Selected Meat (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397; [1988] FCA 364 Hamod v State of New South Wales [2011] NSWCA 375 Hamod v State of New South Wales (2002) 188 ALR 659; [2002] FCA 424 Harvey v Barton (No 4) [2015] NSWSC 80 Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 Penson v Titan National Pty LT D (No 3) [2015] NSWCA 121
Category:	Costs
Parties:	Terry Bassal (First Plaintiff) Albert Moutalb Bassal (Second Plaintiff) Savills (NSW) Pty Limited (Defendant)
Representation:	Counsel: Mr D Eardley (Plaintiffs) Mr T Marskell (Defendant)   Solicitors: Stewart & Associates (First and Second Plaintiff) Wotton and Kearney (Defendant)
File Number(s):	2011/278952
Publication restriction:	Nil

Judgment

1. On 24 July 2019, I delivered the principal judgment in this matter: Bassal v Savills (NSW) Pty Limited [2019] NSWSC 696. I made the following orders at that time:

1. Judgment for the defendant.

2. The plaintiffs are to pay the defendant’s costs.

2. By notice of motion filed on 14 August 2019 the defendant sought a variation of the costs order. Specifically, the following orders were sought:

1. Pursuant to Rule 42.15A of the Uniform Civil Procedure Rules 2005 (NSW) (“UCPR”), the plaintiffs pay the defendant’s costs on the ordinary basis up until 30 September 2014 and on an indemnity basis thereafter;

2. Pursuant to section 98(4)(c) of the Civil Procedure Act2005 (NSW), the plaintiffs pay the defendant’s costs of the proceedings in the sum of $2,385,547.92, or such other sum as this Honourable Court may order;

3. The plaintiffs to pay the defendants costs of, and incidental to, the notice of motion; and

4. Such further other orders as this Honourable Court deems fit.

3. A timetable was agreed upon and the matter proceeded on the papers. In accordance with the timetable, I subsequently received the defendant’s written submissions on 14 August 2019 and the plaintiffs’ written submissions on 18 September 2019.

4. Although the plaintiffs were unrepresented for most of the substantive proceedings before me, the plaintiff’s cost submissions were prepared by counsel.

Factual background

5. The background and facts of these proceedings are set out in the principal judgment and these reasons assume some familiarity with that decision. In brief, the plaintiffs, Terry Bassal and his father Albert Bassal brought proceedings against Savills (NSW) Pty Limited (“Savills”) in both contract and tort. Savills is a commercial real-estate agency. The plaintiffs’ company and another company formed a joint venture to develop a Discount Factory Outlet in Campbelltown. The joint venture partners signed an Exclusive Leasing Agency Agreement with Savills. It was anticipated that Savills would identify appropriate tenants and refer them to the joint venture partners for approval to rent space in the proposed Centre. Due to the funding arrangements the joint venture needed to be at 90% occupancy in order for the significant loan to be repaid. The Centre opened at less than 90% occupancy and failed to thrive as a shopping destination. The plaintiffs’ company could not repay the loan and the venture failed.

6. The plaintiffs contended that Savills was negligent in failing to secure 90% occupancy of the Discount Centre. Specifically, they claimed that Savills failed to implement an appropriate leasing strategy, failed to find appropriate lessees, failed to allocate adequate human resources to the project and delayed the leasing process. Savills defended the proceedings asserting that it had fulfilled its contractual obligations and had not breached its duty of care.

7. Ultimately, the plaintiffs failed to establish that Savills owed them a special duty to achieve a particular outcome; there was no clause in the contract requiring them to do so. Therefore, Savills was only required to provide its services under the contract with the same reasonable care and skill as an ordinary professional leasing agent. The expert evidence did not establish that Savills failed to act with reasonable care and skill. The claim in negligence failed for the same reason. That is, the expert evidence did not show a failure to act with reasonable care and skill. I was further satisfied that even had I been satisfied that Savills had breached its duty of care in both contract and tort, factual causation could not be established.

Evidence in support of an award of indemnity costs

8. In support of its motion, Savills relied upon the affidavit evidence of Ms Dearne Wellington dated 14 August 2019. She is a solicitor employed by Wotton and Kearney. She was admitted as a legal practitioner in 2012 and has practised continuously since then in the area of commercial litigation, principally in insurance and professional liability disputes.

9. Annexed to Ms Wellington’s affidavit was an email sent by a former employed solicitor at her firm to the plaintiffs then solicitors, CMC Lawyers, dated 30 September 2014. That letter indicated that, in the opinion of her firm of solicitors, the plaintiffs had no prospects of success, but in order to prevent further unrecovered costs “and to afford protection in respect of any future costs”, Savills was prepared to settle the matter on the basis of an enclosed offer of compromise. The annexed offer of compromise was in these terms:

“The Defendant offers to compromise the Plaintiffs claim on the following basis:

(a) This offer relates to the whole of the Plaintiffs’ claim in these proceedings.

(b)The proceedings be dismissed.

(c) The Defendant to pay the Plaintiffs the sum of $700,000.

(d) The Plaintiffs’ costs as agreed or assessed up to the time this offer was made will be paid by the Defendant.

(e) This offer shall remain open for acceptance for 28 days after the date on which this offer is made.

(f) This offer is made in accordance with Rule 26.26 of the Uniform Civil Procedure Rules 2005 (NSW).”

10. This offer was not accepted.

11. On 1 October 2015, an email was sent to the plaintiffs’ new solicitor, Mitry Lawyers. This second letter referred to a mediation that had been held in September 2014. Reference was also made to the fact that an offer of compromise in the amount of $700,000 plus costs had been previously made, and not accepted, and nor had any counter-offer been made. Difficulties with the plaintiffs’ case were identified in this letter and a further offer of compromise made in the following terms:

“9 … in line with our recent discussions, and taking in good faith your indication that the Plaintiffs may now be open to considering a sensible commercial settlement, we are instructed to make the following offer:

9.1 Savills pay the plaintiff an amount of $850,000 inclusive of costs and interest;

9.2 a deed of release and indemnity be entered by the parties, by which the Plaintiffs provide full releases and indemnities by Savills for their claim in relation to any other actions, suits, claims, demands and causes of action in any way connected with the claim; and

9.3 your client accepts this offer by 4pm on Friday, 9 October 2015.”

12. The 1 October 2015 letter went on to state that in the event that the offer was rejected and that the plaintiffs obtained a result which was “no more favourable” than the offer contained in the letter, the letter would be produced in court on the question of costs. No answer was received to this letter by 9 October 2015.

13. The rest of Ms Wellington’s affidavit sets out in some detail the particular personnel who were involved in the matter, including solicitors, barristers and experts. Ms Wellington summarised all of the costs incurred both before and after 1 October 2015. A schedule calculating the amount was also included. Exhibited to her affidavit was a lever arch folder marked “DKM-1” containing all of the bills rendered in this matter. I do not consider it necessary to summarise that material. These invoices comprised 377 pages.

14. The plaintiffs did not file any evidence on this motion.

The defendant’s submissions

15. The defendant’s primary submission was that the court should make a gross sum costs order against the plaintiffs under s 98(4)(c) of the Civil Procedure Act in the amount of $2,385,547.92. Its alternate position was that if the court was not prepared to make a gross sum costs order, an indemnity costs order should be made under UCPR, r 42.15A.

16. Reliance was placed on the first offer of compromise made on 30 September 2014. It was submitted that UCPR, r 42.15A was engaged because Savills obtained judgment which was “no less favourable” than the terms of its offer. It was submitted that the letter of compromise was plainly in conformance with the rules and thus its non-acceptance provided Savills with a prima facie entitlement to costs on an indemnity basis from 1 October 2014.

17. As for why the indemnity costs should be in a gross sum amount, Savills relied upon the fact that the proceedings had been lengthy and complex and that the court “may safely presume” that any costs assessment would be protracted and expensive. In support of this submission, reliance was placed on an earlier certificate of costs dated 3 October 2014 in the amount of $31,429.89. It was submitted that the earlier assessment process for a significantly smaller amount took 13 months to complete. Thus, it was submitted, it is impossible to see how an assessment involving several million dollars in legal costs would not take at least as long and, indeed, may take considerably longer.

18. Reliance was also placed on the fact that the plaintiffs’ conduct throughout the proceedings “unnecessarily and unjustifiably” prolonged the proceedings which had a significant impact on the legal costs incurred by Savills. Paragraphs [309]-[325] of the principal judgment were relied upon in this respect.

19. As for the amount of costs sought, reliance was placed upon the evidence of Ms Wellington. It was submitted that the court has sufficient information about the actual costs incurred such that a gross sum costs order could be made on a fair and informed basis. It was noted that all tax invoices issued over the eight year lifespan of the proceedings were before the court.

20. It was accepted that the court was not required to undertake an exercise akin to a costs assessment but submitted that the quantum of costs, hourly rates and hours spent is not “obviously or outwardly unreasonable or excessive”, having regard to the pleadings and complexity of the issues raised in the pleadings, the interlocutory processes and the preparation for the final hearing and the final hearing itself.

21. It was submitted that the starting point should be $2,605,150.52. That is the amount actually incurred less the amount of $31,429.89 being the costs already assessed. Reliance was placed on the decision in Hamod v State of New South Wales [2011] NSWCA 375 where it was held that an “impressionistic discount” is typically applied to this starting figure. It was submitted that a 35% discount ought to be applied in respect of the solicitors’ costs incurred up until 30 September 2014 and a discount of 10% to those costs incurred afterwards. Reliance was placed on the evidence of Ms Wellington that the costs fall within a range which in her experience is quite typical. When the discount is applied to the final amount an amount of $2,385,547.92 is arrived at. A costs order in this amount was sought.

22. It was submitted that the approach suggested by Savills does not afford any unfairness to either party and that the court could proceed with confidence to make such an order. The two reasons why it was said that such an order would not work any unfairness were as follows. First, Savills has not sought interest on the amount which would it would normally be entitled to under s 101 (4) of the Civil Procedure Act and, secondly, regard should be had to the conduct of the plaintiffs in protracting these proceedings as identified in the principal judgment.

23. It was submitted that when these matters are taken into account fairness would be afforded to the plaintiffs should a costs order in the amount proposed be made by the court.

The plaintiffs’ submissions

24. As for the preliminary question of whether the costs should be paid on an indemnity basis after 30 September 2014, it was submitted that there are a number of factors relevant to the consideration of whether the rejection of the Calderbank offer was unreasonable and which militate against the making of such an order in this case.

25. It was noted that at the time of the 30 September 2014 letter the evidence had not closed and the plaintiffs could not properly assess the commerciality of the offer.

26. Reliance was placed on the fact that the proceedings were complex and the damages sought were significant. It was submitted that it was not unreasonable for the plaintiffs to reject the offer because it was not a genuine offer of compromise. It was for a minimal amount compared with the actual damages sought by the plaintiffs. It did not represent a commercial offer. It was submitted that had the offer been “more significant” it may well be thought that the plaintiffs were unreasonable but, in reality, the amount was too small.

27. As for the question of a gross sum costs order, it was submitted that having regard to the relevant principles as derived from the decision in Penson v Titan National Pty LT D (No 3) [2015] NSWCA 121 at [4]-[5] this is not an appropriate matter in which a costs order should made in a gross sum amount. The relevant factors being:

1. The complexity of the proceedings in relation to their costs;

2. The degree of any disproportion between the issues litigated in the cost claim;

3. The relative responsibility of other parties for the costs incurred; and

4. The capacity of the unsuccessful party to set aside any cost liability.

28. It was submitted that there was no evidence as to the likely length and complexity of any costs assessment process. Nor was it likely that the costs of any formal assessment would disadvantage Savills. It was submitted that there is no evidence that the plaintiffs would not pay the costs order. The only basis for Savills’ assertion in this regard is that a prior costs assessment for a smaller amount took 13 months to complete. It was submitted that it is misconceived to extrapolate or infer that the costs assessment would take much longer because the amount is higher.

29. It was accepted that, as was noted in the principal judgment at [309]-[325], there had been numerous changes of legal representatives and at least 53 directions hearings in this matter. It was submitted that this is “not remarkable” given the complexity of the matter and the fact that it ran for eight years. It was noted that the defendant also changed solicitors on two occasions during that time. It was submitted that, given the nature of the matter, the plaintiffs’ conduct was not such that it protracted or delayed the finality of the proceedings.

30. The plaintiffs referred to other decisions of this Court where a gross sum order had been made to distinguish them from the present case, namely Harvey v Barton (No 4) [2015] NSWSC 809 and Coshott v Parker (No. 3) [2015] NSWSC 1195. In these decisions, gross sum costs orders were made in order to avoid protracted litigation during the costs assessment process. The plaintiff submitted that the prior experience between the parties did not indicate that a costs assessment would spark unduly protracted proceedings.

31. It was submitted that an assessment of the defendant’s costs should not require the court to engage in a detailed examination that would be more appropriate to taxation or a formal costs assessment. Such an order should only be made when the court considers that it can do so fairly between the parties. That includes sufficient confidence in arriving at an appropriate sum on the materials available to it; the estimate must be a logical one.

32. As for the evidence necessary to make such an order, it was submitted that there needed to be evidence of the nature of the amounts and rates involved and some demonstrated connection to particular aspects of the proceedings. It was submitted that in the absence of a proper basis for a full determination of the appropriate costs, the court should refuse an application for a gross sum costs order.

33. It was noted that there was no independent costs evidence relied upon by Savills in this matter. Rather, the only evidence was from the defendant’s solicitor, Ms Wellington.

34. Ultimately, it was submitted that the court would not make an order pursuant to s 98(4) because of the shortcomings in the evidence on this issue. It was submitted that there are significant difficulties in relation to the manner in which the costs are sought including specific identified matters. I will refer to some of these matters in my consideration below at [50]-[54].

Consideration

35. Section 98(1)(a) of the Civil Procedure Act 2005 (NSW) provides that costs are in the discretion of the court. Section 98(1)(b) provides that the court has “full power to determine by whom, to whom and to what extent costs are to be paid”. This discretion is subject to the qualification that it “must be exercised judicially in accordance with established principle and factors directly connected with the litigation”: Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 at [65], per McHugh J.

36. Among the fetters on the discretion to award costs are the rules of the court contained in Part 42 of the UCPR. The usual rule is that costs follow the event, unless it appears to the court that some other order should be made: UCPR, r 42.1. There being no reason to depart from the usual rule in this case, I have already ordered that the plaintiffs, as the unsuccessful party, are to pay the defendant’s costs. The issue for determination is whether I should vary the order I made on 24 July 2019 such that those costs be paid on an indemnity basis whereby “all costs are to be allowed”: UCPR r 42.5.

37. It is well established that an order for indemnity costs is not made to punish an unsuccessful party for persisting with a case that fails. Rather, such an order is made to compensate a successful party for costs incurred in certain circumstances. Such circumstances include when litigation has been conducted unreasonably or in bad faith. In Fountain Selected Meat (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 401; [1988] FCA 364, Woodward J explained that where an action is commenced or continued in circumstances where “the applicant, properly advised, should have known that he had no chance of success” then:

“…the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law”.

38. Similarly, in Hamod v State of New South Wales (2002) 188 ALR 659; [2002] FCA 424 at [20] it was held that indemnity costs can be ordered when the court takes the view that it was unreasonable for a party to have subjected the other party to the expenditure. I am not satisfied that the present litigation could be described in this way.

38. The basis upon which the defendant’s assert a prima facie right to an order for indemnity costs in these proceedings is the rejected offer of compromise. Offers of compromise are provided for in UCPR r 20.26. I am satisfied that the letter to the plaintiffs’ lawyer on 30 September 2014 complies with that rule.

39. The consequences of such an offer not being accepted and where the judgment is “no less favourable” are set out in UCPR r 42.15A as follows:

42.15A   Where offer not accepted and judgment no less favourable to defendant

(1)  This rule applies if the offer is made by the defendant, but not accepted by the plaintiff, and the defendant obtains an order or judgment on the claim no less favourable to the defendant than the terms of the offer.

(2)  Unless the court orders otherwise—

(a)  the defendant is entitled to an order against the plaintiff for the defendant’s costs in respect of the claim, to be assessed on the ordinary basis, up to the time from which the defendant becomes entitled to costs under paragraph (b), and

(b)  the defendant is entitled to an order against the plaintiff for the defendant’s costs in respect of the claim, assessed on an indemnity basis—

(i)  if the offer was made before the first day of the trial, as from the beginning of the day following the day on which the offer was made, and

(ii)  if the offer was made on or after the first day of the trial, as from 11 am on the day following the day on which the offer was made.

41. The basis upon which the plaintiffs contend that the costs order should not be varied is that the offer made was not a reasonable one. An offer of compromise under r 42.15A must involve “a real and genuine element of compromise” (The Anderson Group Pty Ltd v Tynan Motors Pty Ltd (No 2) (2006) 67 NSWLR 706; [2006] NSWCA 120; at [8] Fabre v Lui (No 2) [2015] NSWCA 312 at [6]). As Giles J held in Hobartville Stud Pty Ltd v Union Insurance Co Ltd (1991) 25 NSWLR 358 the offeror must be in a “real sense” giving something away.

42. I have had regard to these principles and am satisfied that the offer made was a genuine offer of compromise. I do not accept the plaintiffs’ contention that they were not in a position to know whether the offer made should be accepted. It was the plaintiffs who commenced the litigation in 2011 and the offer was made in late 2014. If their argument that they had to wait until all evidence was filed before being able to assess any offer was to be accepted, this would mean that, as a general rule, it would be considered reasonable to refuse all offers of settlement until close to the hearing by which time significant costs would already have been incurred.

43. I do not accept that it was reasonable for the plaintiffs to reject the offer because it was not a genuine offer of compromise. Although it is to be accepted that the plaintiffs were seeking over $100 million in damages, that in and of itself does not mean that the amount offered was “minimal.” when the identified difficulties with the pleaded case are considered. I am satisfied that the circumstances have been established in this case to vary the costs order such that the costs be paid on an indemnity basis from the time of the first offer on 30 September 2014.

44. Section 98(4)(c) of the Civil Procedure Act allows the court to make a gross sums costs order. Beazley JA in Hamod v State of New South Wales [2011] NSWCA 375 at [816]-[817] indicated the relevant considerations for the making of such an order:

“[816] The terms of s 98(4), together with the more general considerations reflected in the Civil Procedure Act, ss 56(1), 57(1)(d) and 60, suggest the factors that merit particular consideration include: the relative responsibility of the parties for the costs incurred (for example, Harrison v Schipp); the degree of any disproportion between the issue litigated and the costs claimed; the complexity of proceedings in relation to their cost; and the capacity of the unsuccessful party to satisfy any costs liability: Ritchie's Uniform Civil Procedure NSW at [s 98.45].

[817] The exercise of the power conferred by s 98(4) is particularly appropriate where the costs have been incurred in lengthy or complex cases and it is desirable to avoid the expense, delay and aggravation likely to be involved in contested costs assessment. This may arise either from the likely length and complexity of the assessment process: Beach Petroleum NL v Johnson (No 2) at 120; Charlick Trading Pty Ltd v Australian National Railways Commission ; Australasian Performing Rights Association Ltd v Marlin [1999] FCA 1006; or from the likelihood that the additional costs of formal assessment would disadvantage the successful party because of the likely inability of the unsuccessful party to discharge the costs liability in any event: Harrison v Schipp ; Sony Entertainment (Aust) Ltd v Smith (2005) 215 ALR 788 at [90], [194]-[195]; Hadid v Lenfest Communications Inc [2000] FCA 628.”

45. I do not consider that this is an appropriate matter in which to make a gross sum costs order for a number of reasons.

46. First, there is no evidence before the court suggesting that the plaintiffs could nor or would not pay any costs order.

47. Second, there is no evidence before the court as to how long it would take for costs to be assessed. I am not satisfied that an estimate of the length of time can simply be extrapolated from the fact that it took 13 months for an earlier costs order in a much smaller amount to be assessed.

48. Third, I am not satisfied that this court ought to be put to the task of assessing eight years’ worth of invoices in order to arrive at the appropriate amount. In this respect, the defendant’s position was that if the court had regard to all of the fees/invoices provided, the “expert” evidence of Ms Wellington as to the reasonableness of the costs incurred, the hourly rates, the complexity of the litigation and the length of the proceedings and then applied a 35% discount up in 30 September 2014 and a 10% discount thereafter the amount arrived at, namely, $2,385,547.92, would not do injustice to the parties.

49. Even having regard to the fact that the defendant proposes an “impressionistic discount”, and does not seek interest, as well as the fact that the plaintiffs conduct of the case protracted proceedings, the court is not in a position to arrive at a specific sum without having regard to the invoices provided, This is a time consuming task and not the role of this court. As I have indicated above at [34], the plaintiffs identified a number of difficulties in the invoices, which ran to 377 pages, as follows.

50. First, the plaintiffs noted that more than one law firm represented the defendant during these proceedings being DLA Piper and Wotton Kearney. There is neither a single bill of costs detailing all of the costs and disbursements nor a bill of costs on a law firm by law firm basis.

51. Second, it was submitted that it appears that there is some duplication and “rework” when the file was moved from one firm to the other. An example was provided of an invoice issued by Wotton Kearney (5213392) dated 30 August 2013 in the amount of $48,207.65. It was submitted that there are other examples of this.

52. Third, it was also submitted that there was a degree of duplication of work within each of the respective law firms. It was submitted that an example was an invoice issued by DLA Piper (No. 713039863) for the period up to and including 28 February 2013 for the amount of $35,583.13 where there was a charge relating to a six minute review by a solicitor in conjunction with another solicitor. The submission appears to be that this entry should have appeared in the previous invoice, which was for the period up to and including 31 January 2013. An entry appears in this invoice for the same meeting but in relation to the second solicitor.

53. Fourthly, it was submitted that some of the charges appear disproportionate to the actual work provided. It was submitted that the general manner in which the costs had been billed “would appear to be disproportionate and the higher range even for those people to whom charges have been applied.”

54. Finally, it was submitted that the bills in themselves would “appear to be unreasonably high”.

55. Although I have not examined all of the invoices, I have had a cursory regard to those identified by the plaintiffs in their submissions. Without making any finding in relation to any of the complaints made, I am unable to conclude that they are all completely baseless. In the absence of any expert report to provide a benchmark it is difficult to apply any discount to the invoices in any event. Although the proceedings were lengthy, I am not otherwise satisfied that the usual circumstances that would justify a gross sum costs order arise in this matter and I do not propose to make such an order.

56. As for the costs of this motion, both parties have been partially successful. In the circumstances I propose to order that each party is to pay its own costs of this motion.

ORDERS

57. I make the following orders:

1. Order 2 made on 24 July 2019 is varied such that the plaintiffs are to the pay the defendant’s costs of these proceedings on an ordinary basis up to 30 September 2014 and thereafter on an indemnity basis.

2. Each party is to pay its own costs of this motion.

**********

Decision last updated: 03 February 2020