BHP Billiton Limited v Parker (No 2) - [2014] SASC 6

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
BHP BILLITON LIMITED v PARKER (No 2)
[2014] SASC 6
Reasons of Judge Dart a Master of the Supreme Court
21 January 2014
PROCEDURE - COSTS - TAXATION - PRINCIPLES OF TAXATION - IN GENERAL
Unusual expenses - rule in Re Blyth & Fanshawe; Ex parte Wells - extent of warning required - meaning of "reasonably incurred" in Rule 264.
Supreme Court Civil Rules 2006 r 264, referred to.
Re Blyth & Fanshawe; Ex parte Wells (1882) 10 QBD 207; Re Skinner & Smith's Bill of Costs (No. 2) [1990] 1 Qd.R. 180; Re Felton (1942) 60 WN(NSW) 16, applied.
Burford v Allan [1998] SASC 6693; Re Broad and Broad (1885) 15 QBD 252; Dalgety Australia Operations Ltd v FF Seeley Nominees Pty Ltd (No 2) (1988) 49 SASR 75; Commissioner of the Australian Federal Police v Razzi and Others (No 2) (1991) 101 ALR 425; Legal Practitioners Conduct Board v McNamara Business & Property Law (Unreported, Judge Lunn, 25 May 2010), considered.

BHP BILLITON LIMITED v PARKER (No 2)
[2014] SASC 6
JUDGE DART:

BHP Billiton Limited appealed to the Full Court from a judgment of the District Court. Apart from some minor issues, the appeal was dismissed and on 18 June 2012 the Full Court ordered that the appellant pay the respondent’s costs of the appeal on a solicitor and client basis.
These reasons deal with two issues which have arisen on the adjudication of the respondent’s claim for costs of the appeal. The Court has been asked to rule on the issues prior to conducting the adjudication.
The first is whether the rule in Re Blyth & Fanshawe; Ex parte Wells[1] applies. The rule requires a solicitor to provide a warning to the client prior to incurring an unusual expense which may not be recoverable on a party/party costs order. Absent the warning, the incurring of the expense is treated as unauthorised and not recoverable from the client. The rule is a 19^th Century example of what would now be called consumer protection.
[1] (1882) 10 QBD 207 at 210.
For the reasons that follow, I find that the Rule applied and was not complied with.
The second question that arises relates to an interpretation of the Rules. In particular, whether Rule 264(5)(a) provides a different basis for calculating counsel costs when the Court orders costs are to be paid as between solicitor and client.
Background
The respondent was the plaintiff in a lengthy District Court trial and claimed damages arising from having contracted an asbestos-related disease. The appellant was at one time the employer of the respondent. At trial the respondent was represented by Mr Little SC. He succeeded and was awarded damages in the amount of $47,124.93
The parties have agreed most of the respondent’s claim for costs of the appeal. Two interim allocaturs have issued which formalised the position in relation to the agreed costs.
The only outstanding issue on the adjudication is the question of Senior Counsel’s fees for the appeal. The appeal occupied four days. It had been listed for five days. The respondent’s counsel on appeal, Mr Semmler QC, was not the respondent’s counsel at trial. The total fee claimed by Mr Semmler is $237,736. The appellant’s counsel on the appeal, Mr Parker SC, charged a fee of $85,965. The respondent’s counsel at trial, Mr Little, charged a fee for the trial of $192,500. The trial occupied 22 sitting days.
It can be seen immediately that the amount in issue in the litigation was dwarfed by the amount of legal fees incurred. It seems probable that the total legal fees would be more than 20 times the judgment amount.
The Rule in Re Blyth & Fanshawe; Ex parte Wells
The appellant says that the rule in Re Blyth applies and was not complied with. The effect of non-compliance with the rule is that a solicitor is not entitled to charge his client the unusual expense. As a costs order is an indemnity,[2] it would follow that the obligation of the appellant to the respondent is reduced because the respondent himself is not liable to his solicitors for the unusual expense.
[2] Burford v Allan [1998] SASC 6693.
The respondent says that the rule was of no application and, in the alternative, if it did apply, his solicitors complied with their obligations under the rule.
In Re Blyth Baggallay, L.J. said:[3]
I take it to be the general rule of law, and an important rule which is to be observed in almost all cases, that if an unusual expense is about to be incurred in the course of an action it is the duty of the solicitor to inform his client fully of it, and not to be satisfied simply by taking his authority to incur the additional expense, but to point out to him that such expense will or may not be allowed on taxation between party and party whatever may be the result of the trial.
[3] Re Blyth & Fanshawe; Ex parte Wells (1882) 10 QBD 207 at 210.
In Re Broad and Broad[4] the Court of Appeal considered and applied the Re Blyth rule when dealing with the engagement of a third counsel. It found that the engagement of a third counsel fell within the category of an unusual expense and, no warning having been given, the costs were not allowed between the solicitor and his client.
[4] (1885) 15 QBD 252.
A more recent consideration of the rule was undertaken in Re Skinner & Smith’s Bill of Costs (No. 2).[5]Again, the matter involved the question of costs of third counsel. It was established that the client had been advised of the proposal to retain second junior counsel and had not objected to it. Notwithstanding that the incurring of the expense of second junior counsel was authorised by the client, the Court of Appeal held that, in the absence of a proper warning, the client was not obliged to meet the expense.
[5] [1990] 1 Qd.R. 180.
In Re Skinner the Court of Appeal also considered the question of senior counsel being retained on the appeal having not been the counsel who conducted the trial. Connelly J said:[6]
So far as party and party taxation is concerned, the fee to be allowed against the opposite party cannot depend on whether counsel on the appeal is the counsel who conducted the trial. In my view, if counsel insists on being paid an additional fee, whether it be called a reading fee or a special fee, we are again dealing with an unusual expense, and this also would call for a warning that it may not be recovered on taxation as between party and party.
[6] Re Skinner & Smith’s Bill of Costs (No. 2) [1990] 1 Qd.R. 180 at 182,
The question arises, then, as to what is an unusual expense for the purposes of the rule. In Re Felton[7] Maxwell J said an expense may be unusual in one of two ways. The first is because it was not ordinarily incurred and the second because the amount of the expense, eg. special fees to counsel, makes it unusual.
[7] (1942) 60 WN(NSW) 16.
His Honour went on to say as follows:[8]
The essence of the rule is that the client must be protected ; he is embarking on a field which—it can invariably be assumed—is completely strange to him, and which is or must be taken to be familiar to the solicitor. It is therefore the duty of the solicitor to place his client in a position where he can so far as possible be able fully to appreciate the nature and extent of his financial liabilities in the course of the litigation. The use of the words “unusual expense” would in many cases be meaningless and of no value in warning the client ; a full explanation of the possibility that part or the whole of the contemplated expense might not be recovered from an unsuccessful opponent would be a complete protection to the client—without describing it as “unusual”. In other words, if a client is to be asked to authorise expenditure he must be placed in a position properly to exercise his own judgment in authorising it.
[8] Re Felton (1942) 60 WN(NSW) 16 at 21.
As the cases show, counsel fees may be an unusual expense.
I agree with the respondent’s submission that the time when the issue must be considered is the time at which the expense is to be incurred. To the extent that the appellant’s submissions suggested an ongoing obligation to warn, I disagree with that proposition.
The Full Court ordered the appellant to meet the respondent’s costs on a solicitor and client basis. However, at the time Mr Semmler’s retainer was agreed, the respondent’s solicitors did not and could not know that the costs order would be anything other than a party/party cost. They had to consider whether or not a warning was required on the assumption that if the appeal was dismissed, an order for party/party costs would be made.
The respondent’s solicitor needed to consider whether there was any reason why any part of Mr Semmler’s fee might be disallowed on a party/party adjudication.
In my opinion, there were three issues which the respondent’s solicitors should have understood to give rise to the need for a warning. They are each of the second category identified by Maxwell J in Re Felton. They are:
1The fact that the counsel fees to be charged by Mr Semmler would be higher than the fees charged by local senior counsel.
2The additional fees likely to be charged by senior counsel by reason of not having appeared at the trial.
3The fact that in his costs agreement Mr Semmler claimed an entitlement to charge a cancellation fee for days set aside.
The first issue is the question of engaging non-local counsel. It has long been the case that on an adjudication on a party/party basis additional expense incurred in briefing interstate counsel will not be allowed.[9] The additional expenses incurred in briefing interstate counsel are unusual expenses.[10] The guide for counsel fees in South Australia provides a daily fee for senior counsel in the amount of $4500. It may be that more is often allowed on an adjudication, depending on the nature of the matter. Nonetheless, Mr Semmler was to charge $7700 a day.
[9] Dalgety Australia Operations Ltd v FF Seeley Nominees Pty Ltd(No 2) (1988) 49 SASR 75.
[10] Dalgety Australia Operations Ltd v FF Seeley Nominees Pty Ltd (No 2) (1988) 49 SASR 75 at 83
The second issue is that counsel, who did not appeal at trial, was likely to claim an additional fee for reading into the matter. There was a possibility that such a reading fee may not be allowed on an adjudication of costs. So much was made clear in Re Skinner.
The third issue relates to cancellation fees. It has long been the case that cancellation fees are not allowable on an adjudication.[11] Mr Semmler provided for the payment of cancellation fees in his costs agreement. That is an unusual expense.
[11] Commissioner of the Australian Federal Police v Razzi and Others (No 2) (1991) 101 ALR 425 at 428.
At the time the respondent’s solicitors decided to recommend to the respondent that Mr Semmler should be retainer for the appeal, it was necessary to give the Re Blyth warning in relation to the three issues discussed above.
The respondent’s solicitors say that, in the event the Court determined that the rule in Re Blyth applied, it was complied with. On the hearing of the argument the respondent’s solicitors handed to the Court a number of documents, including a letter dated 21 July 2011 addressed to the respondent.
The letter was given to the Court in redacted form. Relevantly, the letter provided, after notifying the respondent that an appeal was likely, as follows:
We believe we should brief an alternate barrister to appear at the appeal. We recommend that we brief Mr Peter Semmler, QC. Mr Semmler is one of the most experienced barristers in the area of dust diseases claims in Australia. Mr Semmler is from NSW. The fees that he charges are slightly higher than those for Queen’s Counsel in South Australia. In this respect, we may not be able to recover from the defendant the entirety of Mr Semmler’s fees if we are successful in defending the appeal. We confirm that the defendant has also briefed a NSW Queens Counsel to appear at the appeal. If we are successful in defending the appeal, the defendant will more than likely be ordered to pay our costs and disbursements on a party/party basis. As advised above, party/party costs do not cover all of the costs incurred by us and usually cover somewhere between 60 to 80 % of the total costs incurred. The remainder are what are known as solicitor/client costs. The solicitor/client costs are what are retained by us out of the judgment monies. Given that we may not be able to recover all of Mr Semmler’s fees, a component of the solicitor/client costs may comprise of the shortfall of what we cannot recover on Mr Semmler’s fees.
In August 2011 the respondent’s solicitors provided Mr Turner with a written conditional costs agreement which he executed on 12 August 2011. Prior to that, Mr Semmler had provided the respondent’s solicitors with a written conditional costs agreement which contained the terms of his retainer and also a fee estimate of between $30,800 and $53,900 inclusive of GST.
On 19 October 2011 Mr Semmler provided the respondent’s solicitors with an update of his fee estimate, which by that time had increased to between $92,400 and $130,900. A further estimate was given on 23 January 2012, shortly before the commencement of the appeal. The estimate was then in the amount of $250,000 inclusive of GST. Neither of the last two cost estimates were provided to Mr Parker.
The only evidence with respect to a warning in compliance with Re Blyth is contained in the letter of 21 July 2011. No evidence was put forward of any discussions with the respondent about retaining Mr Semmler. It is therefore necessary to consider the relevant paragraph in the letter of 21 July 2011 to see whether or not it provided an adequate warning.
In Legal Practitioners Conduct Board v McNamara Business & Property Law[12] Judge Lunn said:[13]
The crux of the rule in Re Blyth is that litigants must be specifically advised by their solicitor that the expense in question is unusual and it is likely that it would be not recoverable on an order for party and party costs if such an order was obtained against another party in the action. ... A general warning that an order for party and party costs, if obtained against the defendant, would not recoup all her legal costs is not sufficient. Such a warning, which was given, relates to her costs as a whole, and not specifically to the items in question.
[12] (Unreported, Judge Lunn, 25 May 2010).
[13] Legal Practitioners Conduct Board v McNamara Business & Property Law (Unreported, Judge Lunn, 25 May 2010) at [8].
The warning in the letter predominantly deals with the question of party/party costs and the fact that some costs would therefore be irrecoverable. The only specific warning is contained in the following sentences:
The fees that he charges are slightly higher than those for Queen’s Counsel in South Australia. In this respect, we may not be able to recover from the defendant the entirety of Mr Semmler’s fees if we are successful in defending the appeal.
Are those two sentences adequate to comply with Re Blyth? The two sentences do not sufficiently inform Mr Parker so as to put him into a position to make an informed decision about whether or not he should incur the costs. I do not think it was accurate to say that Mr Semmler’s fees were slightly higher than senior counsel in South Australia. Further, there is no mention of the additional costs likely to be incurred by Mr Semmler, such as flights and accommodation, that might not be allowed on the adjudication.
There was also no mention in the warning of the fact that the retaining of counsel who did not appear at the trial may mean that additional reading and preparation time might be disallowed on a party/party adjudication. That was the view of the Court in Re Skinner.
Nor was there any mention of the fact that Mr Semmler was contractually entitled to charge cancellation fees which would not be allowed on an adjudication. With no disrespect to the author of the letter, the warning, to the extent that it was a warning, was of a generic kind and did not deal specifically with items which may be disallowed on an adjudication. A Re Blyth warning was required and no adequate warning was provided.
Whether the failure to give the warning will have any practical consequence is not yet clear. It may be, for example, that when the adjudication is conducted that the respondent will establish it was necessary and appropriate to retain interstate counsel to appear on the appeal. If so, the additional costs will be allowed. That, however, is for later.
It is not necessary to consider the exact nature of the warning that was required. However, if the purpose of a Re Blyth warning is to put a client into a position to make an informed choice as to whether or not to incur a particular expense, it might be suggested that a client should be given alternatives. I assume that the senior counsel who conducted the trial was available to conduct the appeal. It might have been preferable for his solicitors to have given Mr Parker that option, the pros and cons and respective costs, of retaining either Mr Semmler or Mr Little to conduct the appeal, so that he could genuinely make an informed choice.
Another issue which should be mentioned is the question of conflict of interest. The consequence of the Re Blyth warning not being provided is that the solicitors cannot claim the expense from their client. A potential conflict between the client and solicitor arises.
If the issue arises on an adjudication of costs between a solicitor and his or her client, no question of a conflict arises, because the client will be separately represented in that dispute. However where, as here, the issue arises on an adjudication of costs between the opposing parties in litigation, there may be occasion when it would be appropriate for the client to be separately represented on the question of the Re Blyth warning.
The Rules issue
The second issue deals with an interpretation of the costs provisions of the 2006 Rules. It is said that the rules differ when compared to the equivalent rules in the 1987 Rules. A question arises as to whether the wording of the current rules have or intended to change the position in relation to the calculation of solicitor and client costs. Whilst the authorities under the 1987 Rules may provide some guidance, it is necessary to consider the wording in the 2006 Rules and, from that wording, determine the meaning of the rule and how it is intended to operate.
On 18 June 2012 the Full Court made the following orders:
1. That the appeal be allowed as follows.
2.That the judgment entered by the District Court for the plaintiff against the defendant on 20 September 2011 be varied by setting aside paragraph 1 and by substituting a judgment for the plaintiff against the defendant in the sum of $47,124.39.
3.That otherwise the appeal be dismissed.
4.That the appellant pay the respondent's costs of the appeal as between solicitor and client.
The Rules provide as follows:
264—Basis for awarding costs
(1)The Court may, in the exercise of its discretion as to costs, award costs on any basis the Court considers appropriate.
(2)As a general rule, however, costs are awarded as between party and party (that is, on the basis that the party entitled to the costs will be reimbursed for costs reasonably incurred by the party in the conduct of the litigation to an extent determined by reference to the scale of costs in force, under these rules or the previous rules, when the costs were incurred).
…
(5)In exercising its general discretion as to costs, the Court may—
(a)award costs as between solicitor and client (that is, on the basis that the party will be fully reimbursed for costs reasonably incurred by the party in the conduct of the litigation); or
(b)award costs on the basis of an indemnity (that is, on the basis that the party will be fully reimbursed for costs incurred by the party in the conduct of the litigation except to the extent that the party liable for the costs shows them to have been unreasonably incurred); or
(c)award costs by way of lump sum; or
(d)award costs on any other basis the Court considers appropriate.

The position of the appellant is that it is necessary to contrast Rule 264(2) and Rule (5)(a) to work out the difference between the party/party costs order and a solicitor/client costs order. The appellant says that the rules require the costs in either situation to be reasonably incurred. The sole difference is that on a party/party adjudication of costs the solicitors’ costs are restricted to the Court scale, which is not the case on a solicitor/client cost order. In relation to counsel fees the appellant says that the costs must be reasonably incurred by reference both to the nature of the costs and the quantum of the costs. “Reasonably incurred” must mean the same in the definition of party/party costs and the definition of solicitor/client costs.
The respondent accepts that the criterion “reasonably incurred” applies to both costs orders. The respondent puts emphasis on the word “fully” in Rule 264(5)(a), which does not appear in Rule 264(2). The respondent says that there is to be a more complete indemnity on a solicitor/client costs order and a more generous approach adopted in determining whether costs were reasonably incurred. The respondent says that on a party/party adjudication a litigant is restricted to the necessities of litigation, but on a solicitor/client adjudication the Court can go beyond what was adequate to what was reasonable.
It may be simply a matter of semantics. In relation to the counsel fees in issue here, the result may be the same on either interpretation.
The position of the respondent is to be preferred. A solicitor/client costs order is not the usual order and special circumstances are ordinarily required before the Court will make such an order. The effect of the appellant’s position is that the counsel fees to be allowed would be the same whether the adjudication was on a party/party or solicitor/client costs order. I do not think that that is the intended result. A party/party costs order is intended to cover the bare necessities of litigation and that will include a modest assessment of an appropriate fee for counsel. A solicitor/client order is intended to fully indemnify a party in relation to the costs incurred. That necessarily involves a more generous assessment of what a reasonable counsel fee was.