Bouras v Grandelis - [2005] NSWCA 463

No judgment structure available for this case.

Reported Decision:
65 NSWLR 214

Court of Appeal

CITATION:
Bouras v Grandelis [2005] NSWCA 463

HEARING DATE(S):
30 August 2005

JUDGMENT DATE:

16 December 2005

JUDGMENT OF:
Giles JA at 1; Santow JA at 43; Basten JA at 136

DECISION:
1. Grant leave to appeal and direct the filing of the notice of appeal within seven days.; 2. Dismiss the appeal with costs.

CATCHWORDS:
COSTS – costs assessment – meaning of “assessed on a solicitor and client basis” in Pt 39A r25(4) District Court Rules 1973 – whether same meaning as costs on an indemnity basis in Pt 39A r13 of the Rules – interaction of Rules with costs assessment regime in Pt 11 Division 6 Legal Profession Act 1987 – assessment of costs on “fair and reasonable” basis under s208F of the Act.

LEGISLATION CITED:
District Court Act s148A; s148B; s161(6)
District Court Rules Pt 19A r9; Pt 39A r25; Pt 39A r13
Legal Profession Act 1987 s208A – s208I
Supreme Court Rules Pt 52 r33

CASES CITED:
Adams v Kennedy [2001] NSWCA 7
Alpine Shire Council v MHSC Transportation Services Pty Ltd (No 2) [2002] VSC 58
Burnie Port Corp Pty Ltd v Bank of Western Australia Ltd [2003] TASSC 132
Clark v Tasmania (No 2) (1999) Tas SC 130
EMI Records Ltd v Ian Cameron Wallace Ltd (1983) 1 Ch 49; [1982] 2 All ER 980
Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants & Ors (1988) 81 ALR 397
Gibbs v Gibbs (1952) 1 All ER 942
Giles v Randall (1915) 1 KB 290
Kumagai Australian Finance v Avarton Ltd (Bryson J, 7 June 1991, unreported)
Lee v Kennedy [2001] NSWCA 8
Milosevic v Government Insurance Office of New South Wales (1993) 31 NSWLR 323
Packer v Meagher (1984) 3 NSWLR 486
Penrith City Council v Parks (No 2) [2004] NSWCA 381
Qantas Airways Ltd v Dillingham Corporation Ltd (Rogers J, 14 May 1987, unreported)
re Bond Corporation Holdings Ltd (1989) 1 WAR 465
re Public Trustee Act (2000) 1 Qd R 409
Spencer v Dowling (1997) 2 VR 127
Thomas & Anor v Southcorp Australia Pty Ltd & Anor (No 2) [2004] VSC 50

PARTIES:
Lily BOURAS (Appellant)
Antonia Elizabeth GRANDELIS (Respondent)

FILE NUMBER(S):
CA 41192/04

COUNSEL:
P D GRAY-GRZESZKIEWICZ (Appellant)
D P O’DOWD (Respondent)

SOLICITORS:
Deborah G Marriott, Dundas (Appellant)
Keddies (Respondent)

LOWER COURT JURISDICTION:
Supreme Court

LOWER COURT FILE NUMBER(S):
SC 13072/04

LOWER COURT JUDICIAL OFFICER:
Malpass AsJ

CA 41192/04
SC 13072/04

GILES JA
SANTOW JA
BASTEN JA
16 DECEMBER 2005

Lily BOURAS v Antonia Elizabeth GRANDELIS

Judgment

1 GILES JA: I have had the advantage of reading the reasons of Santow JA in draft. They set out material facts and identify relevant legislation and rules. The essential question for decision is the meaning of “assessed on a solicitor and client basis” in Pt 39A r 25(4) of the District Court Rules (“the Rules”); more particularly, whether the claimant was correct in her contention that it meant costs on an indemnity basis as described in Pt 39A r 13 of the Rules, and that the assessor and then the Costs Review Panel (“the Panel”) had erred in law by failing to adopt that basis of assessment. Drawing upon his Honour’s reasons, I explain without undue repetition my path to a decision.

2 As his Honour’s reasons show, costs on a solicitor and client basis has been given differing content, sometimes equated with indemnity costs but often distinguished from costs on an indemnity basis. The decision in the present case does not turn on an historical or abstract meaning of “assessed on a solicitor and client basis”. It turns on the meaning of the phrase as used in Pt 39A r 25 of the Rules.

3 Part 39A was added to the Rules in 1995 (see Government Gazette, 17 March 1995, p 1543). It applied to costs after 30 June 1994, and its application was expressed to be subject to the Legal Profession Act 1987 (“the LP Act”) and the regulations made thereunder (r 1(2)). So far as immediately relevant, it included -

(a) as rule 10, that costs payable by or under the rules or any order of the Court “shall be payable on a party and party basis unless the rules or an order provide that they are payable on an indemnity basis”; and

“13. On an assessment on the indemnity basis, all costs shall be allowed except in so far as they are of an unreasonable amount or have been unreasonably incurred, and any doubts which the assessor may have as to whether the costs were reasonably incurred or were reasonable in amount shall be resolved in favour of the receiving party.”

4 There was no definition or description of costs on a party and party basis, in Pt 39A or elsewhere in the District Court Act (“the DC Act”) or the Rules, but see Milosevic v Government Insurance Office of New South Wales (1993) 31 NSWLR 323, below.

5 Part 39A in its form when added to the Rules in 1995 did not contain r 25. The then equivalent to r 25 dealing with costs consequences of an unaccepted offer of compromise was Pt 19A r 9. By r 9(5), a plaintiff who bettered an offer not accepted by the defendant was entitled, unless the Court otherwise ordered, to costs on a party and party basis to the date of the offer and costs on an indemnity basis thereafter. By r 9(6), a defendant’s offer not bettered by the plaintiff brought costs on a party and party basis to the plaintiff to the date of the offer and to the defendant thereafter. Rule 9(11) described costs on an indemnity basis, in the same terms as the later Pt 39A r 13.

6 It had been held in Milosevic v Government Insurance Office of New South Wales that s 148A of the DC Act confined costs payable under the Rules or an order of the Court to those payable between party and party including disbursements, and that Pt 19A r 9(5) was beyond the rule-making power so far as it provided for an order for indemnity costs. The decision had been negated in 1994 by s 148AB of the DC Act, which had itself been repealed later in 1994 and replaced by a new s 148B of the DC Act commencing on 1 July 1994. It provided -

“148B(1) Subject to this Act and the Rules and subject to any other Act -

(a) costs in or in relation to any proceedings shall be in the discretion of the Court;

(b) the court has full power to determine by whom, to whom and to what extent costs are to be paid [in] or in relation to any proceedings; and

Legal Profession Act

7 It is evident that s 148B and Pt 39A were intended to complement the change in the costs regime wrought by the amendments made to the LP Act by the Legal Profession Reform Act 1993. The scheme introduced by the new Pt 11 Div 6 of the LP Act commenced on 1 July 1994, the date on which s 148B commenced and from which Pt 39A applied. It did away with taxation of costs and provided instead for assessment of costs by costs assessors. By s 208F the assessment was essentially one of fair and reasonable costs, which by headings were equated with party/party costs (see the headings to s 202, to Subdiv 3 preceding s 208F and to s 208H) although that or a like phrase was not used in the substantive provisions. An assessment of fair and reasonable costs was distinguished from assessment on an indemnity basis. The power to order an assessment on an indemnity basis was specifically recognized in s 208F(3), and s 208I provided that the Division did not limit the power of a court or tribunal to determine that the amount of the costs was to be determined on an indemnity basis. That phrase was not defined or described.

8 Section 148B(1)(c) was expressed to be subject to the DC Act and the Rules and any other Act. Against the background of Milosevic v Government Insurance Office of New South Wales, however, I do not think the general discretion as to costs in s 148B(1)(a) and (b) expanded the available bases of assessment according to the scheme in the LP Act as reflected in Pt 39A rr 1 and 10. In my view, only the two alternatives were available: fair and reasonable costs in accordance with the LP Act provisions for assessment, or costs on an indemnity basis as described in Pt 39A r 13. Although Pt 19A r 9 had been in force from prior to 1 July 1994, its references to costs on a party and party basis and costs on an indemnity basis now took up those bases of assessment.

9 In 1996 the Rules were amended by the removal of Pt 19A r 9 and the addition in its place of Pt 39A r 25 (see Government Gazette, 18 October 1996, p 6982). The substance of r 25 was the same as the rule it replaced, with entitlement, subject to an order otherwise, to costs on a party and party basis to the date of the plaintiff’s unaccepted offer and costs on an indemnity basis thereafter (r 25(4)) or entitlement to costs on a party and party basis split at the date of the defendant’s unaccepted offer (r 25(6)). The former Pt 19A r 9(11) was not reproduced, no doubt because it was accommodated by Pt 39A r 13. The available bases of assessment remained the two alternatives of fair and reasonable costs under the LP Act scheme or costs on an indemnity basis as described in Pt 39A r 13.

10 Part 39A r 25 was then amended in 1997 in respect of offers made on or after 1 January 1998, to the form partly set out in the reasons of Santow JA (see Government Gazette, 26 September 1997, p 8208). Rule 25(4) no longer provided for costs on an indemnity basis from the date of the plaintiff’s unaccepted offer, but for “costs in respect of the claim assessed on a solicitor and client basis”. It was modified to apply only to an offer made twenty-eight days or more before the trial, and by a new r 25(4A) (not set out in the reasons of Santow JA) if the offer was made less than twenty-eight days before the hearing of the action commenced, the entitlement to costs was on a party and party basis until the date of the offer and on a solicitor and client basis thereafter. A new r 25(5) qualified this slightly when the offer was made during the trial. Rule 25(6) remained as a provision for split costs on a party and party basis where a defendant’s offer was not bettered by the plaintiff. The circumstances of an order otherwise were tightened by requiring “an exceptional case and for the avoidance of substantial injustice”. There was added as r 25(5A) (also not set out in the reasons of Santow JA) -

“25(5A) An entitlement to costs on a solicitor and client basis under subr (4), (4A) or (5) does not include an entitlement to the amount of any surcharge on costs provided by a costs agreement, conditional or otherwise”.

11 While Pt 39A r 25 no longer referred to indemnity costs, there was no change to Pt 39A r 10, nor was there provided a definition or description of costs on a solicitor and client basis.

12 So the question: what was meant by “assessed on a solicitor and client basis”?

13 Costs on a solicitor and client basis were plainly not the same as costs on a party and party basis, because if they were the same there would have been no costs consequences of a defendant’s failure to accept a plaintiff’s offer by the operation of r 25(4A). Where costs on a party and party basis were assessed as fair and reasonable costs under the LP Act scheme, assessment on a solicitor and client basis, as that phrase was used in Pt 39A r 25, was not an assessment of fair and reasonable costs under the LP Act scheme. That was supported by r 25(5A). It assumed that there might be an entitlement to the amount of costs provided by a costs agreement, although of course costs provided by a costs agreement might not pass the fair and reasonable test.

14 The question comes down, then, to whether costs on a solicitor and client basis were the previous indemnity costs given a different name, or whether they were a new (to the Rules) and different basis of assessment of costs.

15 In answering the question, it is material to have in mind the following matters.

16 First, costs on the indemnity basis described in Pt 39A r 13 did not (despite the name) provide an indemnity against costs payable by the receiving party. The receiving party may have incurred, under a costs agreement or by instructions to the solicitor requiring what would objectively be regarded as excessive servicing, costs beyond those which an assessor would consider reasonably incurred or reasonable in amount. Although the receiving party had the benefit of any doubt, it could receive less than full indemnity.

17 Secondly, and as the reasons of Santow JA show, there has been some confusion concerning costs on a solicitor and client basis.

18 Solicitor and client costs, meaning the costs payable by the client to the solicitor on an assessment between them, should be distinguished from costs on a solicitor and client basis, meaning the costs payable by one party to another on an assessment between them on that basis (see for example Saddington, Taxation of Costs Between Parties, pp 31-3; Milosevic v Government Insurance Office of New South Wales at 340-1 per Mahoney JA; re Public Trustee Act (2000) 1 Qd R 409 at [56] – [63]). Terminology varied, and the former costs have been called solicitor and own client costs, perhaps to mark the distinction (see Giles v Randall (1915) 1 KB 290 at 295; Oliver, Law of Costs, p 64). That phrase has been equated with an indemnity (Gibbs v Gibbs (1952) 1 All ER 942 at 949; re Public Trustee Act at [66]).

19 In Giles v Randall costs on a solicitor and client basis were described by Buckley LJ (at 295) as “substantially a party and party taxation on a more generous scale”, although a lesser scale than solicitor and own client costs; see also Qantas Airways Ltd v Dillingham Corporation Ltd (Rogers J, 14 May 1987, unreported). In EMI Records Ltd v Ian Cameron Wallace Ltd (1983) 1 Ch 49 Megarry VC said (at 65) that orders for costs on an indemnity basis had been more or less equated with orders for costs as between solicitor and own client, and (at 71) regarded that as appropriate; his Lordship appears to have thought (at 64) that solicitor and client costs may well be the same as the common fund basis in the rules.

20 The descriptions of bases of costs in rules of court has complicated any general concept, as may have failure to bear in mind the distinction abovementioned. Costs as between solicitor and client have been regarded as providing an indemnity for reasonably incurred costs (see Saddington, p 66-7 and cases referred to), and the occasion for equation with indemnity costs which are described as under Pt 39A r 13, so as to provide indemnity qualified by reasonableness is obvious. That may explain the language used in cases such as Packer v Meagher (1984) 3 NSWLR 486, Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397, Adams v Kennedy [2001] NSWCA 7, Lee v Kennedy [2001] NSWCA 8, Clark v Tasmania (No 2) (1999) Tas SC 130 and re Bond Corporation Holdings Ltd (1989) 1 WAR 465. But solicitor and (own) client costs are not the same as costs on a solicitor and client basis.

21 Thirdly, Practice Note 42, which was published in the Government Gazette on 26 September 1997 contemporaneously with the gazettal of the amendments to Pt 39A r 25, explained the change in phraseology in r 25; again for convenience, the immediately relevant passage in the Practice Note was -

The Rule amendments substitute solicitor and client costs for indemnity costs, following the practice in most other States of Australia

22 It was stated in the Practice Note that it had been issued, and the amendments had been made, as a result of the Court’s consideration of an investigation into the efficacy of the system of offers of compromise made under the auspices of the Centre for Legal Process (“the Centre”). The report of the Centre of May 1997 (“the report”) is capable of assisting in the ascertainment of the meaning of Pt 39A r 25, which in my opinion is ambiguous or obscure (see Interpretation Act, 1987 s 34(1)).

23 In the report -

(a) it was said that practitioners interviewed by the Centre generally thought that under the LP Act scheme “solicitor and client costs usually exceed party and party costs by up to 25 per cent, and exceed indemnity costs by about 10 per cent” (para 4.22);

“The recovery of indemnity costs from the date of the plaintiff’s offer could be replaced with the recovery of costs assessed on a solicitor and client basis for the whole of the proceedings. This would follow the approach taken in Victoria, Queensland, South Australia and Tasmania” (para 4.25); and

“The sanction supporting a plaintiff’s offer made 28 days or more before the hearing should be solicitor and client costs of the whole action, shorn of any percentage increase provided by a conditional costs agreement. The sanction for a plaintiff’s offer made within 28 days of the hearing should be solicitor and client costs from the date of the offer only (again with no percentage increase) – Part 39A rule 25.”

24 It is evident that the amendments to Pt 39A r 25 took up this proposal, and that the incentive was to lie in the combination of costs assessed on a solicitor and client basis and costs for the whole of the proceedings, in place of the combination of indemnity costs from the date of the plaintiff’s offer.

25 While the report referred in para 4.22 to solicitor and client costs exceeding indemnity costs, no doubt having in mind indemnity costs as described in Pt 39A r 13 which did not in fact provide indemnity, it is not entirely clear whether the solicitor and client costs were costs payable by the client to the solicitor or costs payable by one party to another. I think it was probably the former, because of the excess over indemnity costs. Costs assessed on a solicitor and client basis in para 4.25 are plainly enough the same as solicitor and client costs in Proposal 6. There is reason to think that the report equated the two, that is, equated solicitor and (own) client costs with costs on a solicitor and client basis.

26 What was proposed as costs assessed on a solicitor and client basis could be illuminated by the reference in para 4.25 to “the approach taken in Victoria, Queensland, South Australia and Tasmania”, which must have been the “practice in most other States of Australia” to which the Practice Note referred. It took up the report’s summary of rules for offers of compromise in other States and Territories.

27 That summary included as rules providing for costs assessed on a solicitor and client basis for the whole of the proceedings -

(a) Victoria: Supreme Court and County Court Rules O 26 r 8(2);

(b) Queensland: District Court Rules s 118;

(c) South Australia: Supreme Court Rules r 41.04; and

28 At the time (a number of the rules have since been amended or replaced) -

(a) the Victorian rules provided that “[o]n a taxation on a solicitor and client basis all costs reasonably incurred and of reasonable amount shall be allowed” (O 63 r 30);

(b) the Queensland rules picked up the Supreme Court Rules (s 367), which had a provision concerning solicitor and client costs but no definition or description of costs assessed on a solicitor and client basis.

(c) the South Australian rules did not define or describe costs assessed on a solicitor and client basis;

29 It can not be said that the report adopted any particular definition or description of costs on a solicitor and client basis. It adopted the phrase “assessed on a solicitor and client basis”, but what was proposed as those costs is not greatly illuminated. It is but a weak inference that the definition or description in the Victorian rule was in mind, and there is not dispelled the possibility that costs on a solicitor and client basis were equated with solicitor and (own) client costs.

30 In my opinion, the costs on a solicitor and client basis in Pt 39A r 25 were intended to be a new basis of costs, different from costs on an indemnity basis.

31 First, there was a deliberate change in r 25 from the phrase “assessed on an indemnity basis” to the phrase “assessed on a solicitor and client basis”. Ordinarily that would indicate that the new basis for assessment was different from the old.

32 Secondly, Practice Note 42 made plain that the amendments were intended to increase the effectiveness of the system of offers of compromise, and in particular to increase the incentive to a plaintiff to make a reasonable offer of compromise. The incentive was increased by making the costs in r 25(4) the costs “in respect of the claim”, that is, all costs rather than costs from the date of the offer, unless the offer was made less than twenty-eight days before the trial when the entitlement was only to costs from the date of the offer. The incentive was increased by tightening the circumstances of an order otherwise. Even without reference to the report, it appears to have been intended also to increase it by a basis of assessment of costs more beneficial to the receiving party than that in the phrase “assessed on an indemnity basis”, the more beneficial basis being expressed by the phrase “assessed on a solicitor and client basis”. Regard to the report supports this.

33 Thirdly, regard to the report also supports the view that costs on a solicitor and client basis were the costs according to that concept, whatever it may have been, as found in the Victorian, Queensland, South Australian and Tasmanian rules. It was not a concept of indemnity costs, which the rules did not use.

34 Fourthly, and not of great weight, Pt 39A r 25(5A) provides some support for costs on a solicitor and client basis as a basis more beneficial to the receiving party than indemnity costs as described in Pt 39A r 13; because the costs provided by a costs agreement may not pass the not unreasonable amount or not unreasonably incurred test, even with the benefit of the doubt.

35 There are considerations to the contrary. Section 161(6) of the DC Act provided that the section did not give power to make rules “with respect to any matter relating to costs that is regulated by Pt 11 of the Legal Profession Act 1987”. The LP Act recognised the two alternatives of fair and reasonable costs (I use this as shorthand for the more detailed provisions) and costs on an indemnity basis. Pt 39A r 10 provided for costs on a party and party basis, to be given content as the fair and reasonable costs, or on an indemnity basis. While s 208F(1A) provided for assessment in accordance with the operation of the rules of the court or tribunal making the order, it is not clear that this enabled the District Court to provide by rule for a different basis of assessment of costs. It may be thought unlikely, against the background of Milosevic v Government Insurance Office of New South Wales, that the rule-making power was exercised to do so. And, if s 208F (1A) allowed the Rules to provide a new basis for assessment of costs, it may be thought that amendment to r 10 and a definition or description of costs on a solicitor and client basis would have accompanied the 1997 amendments to Pt 39A r 25.

36 These considerations ultimately lead to a challenge to the validity of r 25 so far as it provided for assessment on a solicitor and client basis, and a challenge to validity was no part of the proposed appeal. Short of that, I do not think they prevail in the face of the reasons for concluding that a basis of assessment other than the two alternatives was intended.

37 I therefore conclude that assessment on a solicitor and client basis in Pt 39A r 25 did not mean assessment of fair and reasonable costs under the LP Act scheme or indemnity costs as described in r 13. Penrith City Council v Parks (No 2) [2004] NSWCA 381 also regarded costs on a solicitor and client basis as different from indemnity costs, and it was noted (at [14]) that it was not argued that the LP Act scheme precluded an order for costs on a solicitor and client basis.

38 The appeal to the Master was relevantly on the ground that the costs should have been assessed on an indemnity basis as described in Pt 39A r 13. The Master correctly did not accept that contention, and the Panel did not err in law in failing to adopt that basis of assessment.

39 The Panel determined $70,204.33 as “a fair and reasonable amount of costs to be paid … “. In its reasons stating “[t]he basis on which costs were assessed”, it said -

“(i) On 7 February 2003 costs were awarded in favour of the Review Applicant against the Review Respondent on a solicitor and own client basis in respect to the proceedings.

(ii) On 11 February 2003 costs were ordered against the Review Applicant in favour of the Review Respondent in respect to that day’s Application.

(iii) Costs awarded on a solicitor and own client basis are not the same as costs awarded on an indemnity basis. Costs awarded on a solicitor and own client basis are assessed as though the costs were included in a practitioner/client bill of costs assessed under Sections 208A and 208B of the Legal Profession Act. Accordingly, Part 39A Rule 13 of the District Court Rules is not applicable.

Skalkos v Assaf

40 The order in the District Court was for costs on a ‘solicitor/client” basis, but it was made pursuant to Pt 39A r 25(4) and it became accepted that it meant assessed on a solicitor and client basis. The Panel appears to have regarded that as the same as a solicitor and own client basis, using that phrase and specifically saying that assessment was “as though the costs were included in a practitioner/client bill of costs assessed under Sections 208A and 208B of the Legal Profession Act”. As has been seen, regard to the report provides some support for that view. The proposed appeal did not raise for decision whether or not the Panel erred in this respect, the asserted error of law being only that the assessment should have been on an indemnity basis.

41 Leave to appeal should be granted, but the appeal should be dismissed. I question the reality of the dispute. An assessment by the Panel on a solicitor and own client basis, of a fair and reasonable amount having regard to that basis, would appear to provide recovery of costs at a high level. If what was said in para 4.22 of the report be correct, the recovery would exceed recovery of costs on an indemnity basis – it must be remembered, and may not have been, that the indemnity basis under Pt 39A r 13 does not provide indemnity.

Orders

42 I propose the orders -

1. Grant leave to appeal and direct the filing of the notice of appeal within seven days.

43 SANTOW JA:

INTRODUCTION

District Court Rules

Legal Profession Act

awarded on a solicitor and own client basis

44 Under the relevant District Court Rules, Pt 39A r25(4) provides for the plaintiff to have its claim for costs assessed on a “solicitor and client basis” following an offer of compromise that is later bettered in litigation. However, the difficulty which emerged in this case, is that the relevant provisions of the Act make no express provision for the assessment of costs on a solicitor/client basis; see ss208A, 208B and 208F of the Act, quoted later. Section 208F(1A) of the Act directs an assessor to make an assessment in accordance with the rules of the relevant court, here the District Court and therefore the District Court Rules. But the phrase “solicitor and client basis” is nowhere defined in the DCR.

45 The criterion under the Act for the costs assessor to consider is “the fairness and reasonableness of the amount of costs in relation to that work” (s208A(1)(c). “That work” relates back to s208A(1)(a) and (b), which require the costs assessor to consider

(b) whether or not the work was carried out “in a reasonable manner”.

46 Moreover s208F(3) provides that if a court or tribunal has ordered costs to be assessed on “an indemnity basis”, the costs assessor must assess the costs on that basis. There is however no precisely equivalent provision in relation to ordinary costs on a solicitor/client basis.

47 In the present case, the claimant Ms Lily Bouras, seeks leave to appeal against the decision of Master Malpass, now Malpass AsJ, dismissing the claimant’s appeal against the decision of the Review Panel of Costs Assessors under the Act. The claimant contends

(b) that in so doing, Malpass AsJ erred in holding that there had been no error of law by the Review Panel of Costs Assessors or the original cost assessor in carrying out the assessment in that way.

48 In particular, the claimant contends that Malpass AsJ was in error in holding that when the District Court makes an order for costs on a solicitor and client basis pursuant to Pt 39A r25 DCR,

(b) with the consequence that the test in Pt 39A r13 for what costs are recoverable on an indemnity basis has no application to the assessment of those costs.

49 The claimant contends to the contrary that costs should have been assessed on an indemnity basis.

50 The claimant also contends that Malpass AsJ erred in exercising his discretion pursuant to s208L of the Act, which deals with appeals against a decision of a costs assessor as to a matter of law. The error is said to consist in dismissing the proceedings before him by taking into account an irrelevant matter and failing to take account of a relevant matter, namely,

(b) ignoring evidence to suggest that the difference in applying the correct test would produce a significant difference in assessed costs.

51 The opponent, Antonia Elizabeth Grandelis contends that authority supports the conclusion that the two tests, that for solicitor/client and that for indemnity costs, are not identical. The opponent contends that in any event it has not been established or explained how the application of the test pressed by the claimant would produce a materially different result, and otherwise supports the reasoning of Malpass AsJ.

SALIENT FACTS

52 The claimant sued the opponent in the District Court in respect of personal injuries sustained by the claimant in April 1998. Judgment in that case was dated 7 February 2003 so that was the date for ascertaining the relevant law.

53 The claimant was successful against the opponent and was awarded $181,399.15.

54 This judgment was more favourable than an offer of compromise made by the claimant. The District Court ordered the opponent to pay the claimant’s costs on a solicitor and client basis, pursuant to Pt 39A r25 DCR.

55 The claimant applied for her costs, claimed at around $149,000, to be assessed. The claimant contended, and the opponent then agreed, that costs should be assessed in accordance with the test in Pt 39A r13 DCR (indemnity basis), pursuant to s208F(3) of the Act.

56 On 10 March 2004, a costs assessor issued a Certificate as to Determination of Costs. The determination saw a reduction in the amount claimed by the claimant. Costs were allowed only in the sum of $73,015.10.

57 The costs assessor did not assess costs in accordance with the indemnity basis in Pt 39A r13.

58 On 6 April 2004, the claimant applied for the assessment to be reviewed by a Review Panel.

59 The Panel approached the task on the basis that Pt 39A r13 of the Rules had no application. The panel looked to the provisions of ss208A and 208B of the Act. The panel referred to costs “awarded on a solicitor and own client basis”.

60 On 24 August 2004, the Review Panel issued a Certificate as to Determination. The panel further reduced the costs (by some $3,000) and substituted the sum of $70,204.33 as the amount to be allowed.

61 On 29 September 2004, the Claimant appealed to the Supreme Court from the decision of the Review Panel pursuant to s208L of the Act (which provides for appeals on errors of law). This was on the ground (inter alia) that the Review Panel erred in law in assessing costs by determining whether those costs were fair and reasonable pursuant to s208A and/or s208F(1) and (2) of the Act when it should have assessed costs in accordance with the test in Pt 39A r13 DCR, pursuant to s208F(3) of the Act, that is to say on an indemnity basis.

The Rules and Legislation

62 The relevant District Court Rules and relevant provisions of the Act are set out below:

Relevant

District Court Rules

(now repealed)

Pt 39A r13 Indemnity Basis

Pt 39A r25 Offer of compromise

“(1A) The objects of this rule are:

(b) to compel the parties to an action, under threat of possible penalties in costs, to arrive at an early assessment of the amount of damages, if any, recoverable by the plaintiff,

(c) to encourage the making and acceptance of reasonable offers of compromise by:

(ii) providing corresponding costs relief to the party making the offer,

(e) to provide a discretion in the Court to relieve a party from the imposition of a costs penalty, to be exercised only in an exceptional case and for the avoidance of substantial injustice.

(1) Subject to subrule (2), upon the acceptance of an offer of compromise in accordance with Part 19A rule 3 (4), the defendant shall, unless the Court otherwise orders, pay the costs in respect of the claim by the plaintiff against the defendant up to and including the day the offer was accepted.

…

(4) Where and offer is made by a plaintiff 28 days or more before the hearing of the action commences, and the offer is not accepted by the defendant, and the plaintiff obtains an order or judgment on the claim to which the offer relates no less favourable to the plaintiff than the terms of the offer, then, unless the Court in an exceptional case and for the avoidance of substantial injustice otherwise orders, the plaintiff shall be entitled to an order against the defendant for the plaintiff’s costs in respect of the claim assessed on a solicitor and client basis…” [emphasis added]

(The balance of Pt 39A r25 is set out in the judgment of Giles JA at [10].)

Supreme Court Rules (now repealed)

Pt 52 r 33 Solicitor and Client Basis

Legal Profession Act 1987 (NSW) – principally relevant provisions

Part 11 Legal Fees and other Costs

Division 6 Assessment of Costs

Subdivision 2 Assessments of Bills of Costs

208A Assessment of bills generally

(a) whether or not it was reasonable to carry out the work to which the costs relate, and

(b) whether or not the work was carried out in a reasonable manner, and

fairness and reasonableness of the amount of the costs in relation to that work

(2) A costs assessor is to determine the application by confirming the bill of costs or, if the assessor is satisfied that the disputed costs are unfair or unreasonable, by substituting for the amount of the costs an amount that, in his or her opinion, is a fair and reasonable amount .

(3) Any amount substituted for the amount of the costs may include an allowance for any fee paid or payable for the application by the applicant.

(4) If the barrister or solicitor is liable under section 182 (3) to pay the costs of the costs assessment (including the costs of the costs assessor), the costs assessor is to determine the amount of those costs. The costs incurred by the client are to be deducted from the amount payable under the bill of costs and the costs of the costs assessor are to be paid to the Manager, Costs Assessment.

(5) A costs assessor may not determine that any part of a bill of costs that is not the subject of an application is unfair or unreasonable. [emphasis added]

208B Additional matters to be considered by costs assessors in assessing bills of costs
In assessing what is a fair and reasonable amount of costs, a costs assessor may have regard to any or all of the following matters:

(a) whether the barrister or solicitor complied with any relevant regulation, barristers rule, solicitors rule or joint rule,

(b) whether the barrister or solicitor disclosed the basis of the costs or an estimate of the costs under Division 2 and any disclosures made,

(c) any relevant advertisement as to the barrister’s or solicitor’s costs or skills,

(d) any relevant costs agreement (subject to section 208C),

(e) the skill, labour and responsibility displayed on the part of the barrister or solicitor responsible for the matter,

(f) the instructions and whether the work done was within the scope of the instructions,

(g) the complexity, novelty or difficulty of the matter,

(h) the quality of the work done,

(i) the place where and circumstances in which the legal services were provided,

(j) the time within which the work was required to be done.

Subdivision 3 Assessment of party/party costs

208F Assessment of costs—costs ordered by court or tribunal

(a) whether or not it was reasonable to carry out the work to which the costs relate, and

(1A) An assessment must be made in accordance with the operation of the rules of the relevant court or tribunal that made the order for costs.

(2) A costs assessor is to determine the costs payable as a result of the order by assessing the amount of the costs that, in his or her opinion, is a fair and reasonable amount.

(3) If a court or a tribunal has ordered that costs are to be assessed on an indemnity basis , the costs assessor must assess the costs on that basis, having regard to any relevant rules of the court or tribunal.

(4) The costs assessed are to include the costs of the assessment (including the costs of the parties to the assessment, and the costs assessor). The costs assessor may determine by whom and to what extent the costs of the assessment are to be paid.

First Instance Judgment

63 I set out below a summation of the reasons for the primary judge declining to allow the appeal pursuant to s208L of the Act.

64 Part 39A r13 of the District Court Rules has no application to the costs order made in this case because that provision applies to indemnity costs only. The order made by the court was that the costs be payable on a solicitor and client basis; Judgment at [14].

65 It is of no importance that the history of the matter has seen the use of different terminology; Judgment at [15].

66 The Rules do not define what is meant by costs awarded on a solicitor and client basis. Apart from r25, the expression does not otherwise appear in the Rules. That may be a product of error and need rectification; Judgment at [16].

67 The Rules do provide a definition of indemnity costs. The definition is to be found in Pt 39A r13; Judgment at [17].

68 The expression “solicitor/client basis” was defined in Pt 52 r33 SCR 1970. This provision applied prior to 1 July 1994; Judgment at [18].

69 The definitions revealed that whilst there may be similarity, costs awarded on a solicitor and client basis and indemnity costs are not identical. Therefore the submission was not accepted that the order made by the District Court should be treated as an order for indemnity costs. Further, s208F(3) of the Act did not have application in the present case; Judgment at [19].

70 The primary judge accordingly declined to allow the appeal even had the Review Panel erred at law on the basis that:

(b) He was not satisfied that a significantly larger sum would have been assessed had the assessment process proceeded on an indemnity basis; Judgment at [20];

(c) He was not satisfied that an increase in the amount assessed (if any), would justify the further expense of another review; Judgment at [21].
DISPOSITION
The Issues

71 There are two principal issues on appeal:

(b) If the Act does not so prevail over the DCR, and costs are therefore to be assessed on a solicitor and client basis pursuant to Pt 39A r25(4) DCR, what does “assessed on a solicitor and client basis” mean; in particular is the meaning the same as the meaning of “indemnity basis” as used in Pt 39A r13 DCR?

(b) failing to take into account a relevant matter (that there was evidence suggesting that applying the correct test would produce a significant difference in assessed costs)?

72 As Underwood J commented in Burnie Port Corp Pty Ltd v Bank of Western Australia Ltd [2003] TASSC 132 at [17], the distinction between solicitor and client costs and indemnity costs is a “rather murky issue”. The relevant legislation provides very little guidance and the courts have rarely had to tackle the issue directly.

73 Put simply, the claimant’s argument has these steps. First, that an order for solicitor and client costs is effectively the same as an order for indemnity costs. Second, that the Costs Assessor and the Review Panel incorrectly applied the “fair and reasonable” test in s208F(2) of the Act, and should instead have applied s208F(3). This would have directed the assessment back to Pt 39A r13 DCR. Rule 13 provides for costs ordered on an indemnity basis, and effectively allows, in shorthand form, “all costs except unreasonable costs”.

74 On the other hand, the opponent essentially argues in these steps. First, that the primary judge correctly held that solicitor and client costs are not identical to indemnity costs. Second, that the Costs Assessor and Review Panel acted correctly in applying the “fair and reasonable” test in s208F(2) of the Act. Then it is submitted that there is a distinction between these two bases for costs (solicitor and client versus indemnity costs) clearly contemplated by the legislature, even if it is somewhat difficult to identify with precision.

75 In the alternative, the opponent argues that even if the assessors applied the wrong test, the claimant has failed to demonstrate how application of the test for solicitor and client costs contended for by the claimant would achieve a different result from the “fair and reasonable” test adopted by the assessors and that an appellate court should not interfere with the discretionary judgment reached. The opponent argued this second issue with particular emphasis, without abandoning the first.

The First Issue

Legislative History

76 The term “solicitor and client” costs is nowhere defined in the DCR, and is not used in the Act.

77 The Legal Profession Act 1987 commenced on 1 January 1988. The Legal Profession Reform Act 1993 commenced on 1 July 1994 and completely overhauled the existing provisions for costs assessment. Part 11 Division 5 of the Act, which had provided for a scheme of taxation of bills of costs, was replaced by Part 11 Division 6 Subdivision 3, which contains the provisions (including s208F) which are the subject of the present appeal. S208F was subsequently amended, and subs(1A) inserted, by the Legal Profession Amendment Act 1996, which commenced on 1 April 1997. None of these amendments relating to costs assessment appears to have been the subject of any specific discussion or explanation in Parliament at the time of its introduction.

78 Part 39A r25 was introduced into the District Court Rules 1973 from 18 October 1996. It was amended as from 1 January 1998 to provide in subr(4) and (4A) for the sanction of solicitor and client costs for the whole of proceedings, rather than the sanction of indemnity costs from the date of the unaccepted offer; see Penrith City Council v Parks (No 2) (supra) at [14]. The explanatory note to the amendments states that their purpose was “to make effective the existing rules by encouraging the making and acceptance of reasonable offers of compromise in proceedings”.

79 Practice Note 42 states that the 1998 rule amendments followed the practice in most other States of Australia by substituting solicitor and client costs for indemnity costs. However, these amendments appear to have caused the DCR to fall out of step with the Legal Profession Act, which as from 1 July 1994 provides for only two types of costs orders: party/party (the test being whether the costs are “fair and reasonable”) and indemnity costs; see s208F. This raises the question of whether the Act or Pt 39A r25 DCR prevails. I will discuss this below, though the question is largely pre-empted by s161(6) of the District Court Act 1973 (NSW) which provides that “[T]his section does not give power to make rules with respect to any matter relating to costs that is regulated by Part 11 of the Legal Profession Act 1987”, I should also mention s161(7) concerning Practice Notes as follows:

Interpretation Act

Practice Note 42

80 The relevant passage in Practice Note 42 reads, in full:

“The ‘indemnity costs’ incentive to a plaintiff to make a reasonable offer of compromise has lost much of its efficacy since the 1994 reformation of the costs regimen. The [1998] Rule amendments substitute solicitor and client costs for indemnity costs, following the practice in most other States of Australia. Where the offer is made 28 days or more before the hearing the sanction is solicitor and client costs for the whole of the proceedings, not merely from the date of the offer. The surcharge payable by the plaintiff to his solicitor under a conditional costs agreement is not part of the sanction and is not recoverable form the defendant.”

81 The claimant contends that this practice note is to be interpreted as meaning that solicitor and client costs and indemnity costs are the same, except that solicitor and client costs do not include the surcharge mentioned in the last sentence of the note.

82 The Court of Appeal in Penrith City Council v Parks (No 2) briefly considered this practice note at [14]. The Court commented that the amendments to the DCR which commenced in January 1998 (and to which the practice note refers) constituted

“a deliberate change in the incentive to make reasonable offers of compromise… Solicitor and client costs were distinguished from costs on a party and party basis, see Pt 39A r25(5) and (6), with solicitor and client costs expressly not to include the amount of any surcharge on costs provided by a costs agreement (Pt 39A r5A)”

83 This suggests that the exclusion of the surcharge from solicitor and client costs distinguishes solicitor and client costs from party/party costs, rather than distinguishing solicitor and client costs from indemnity costs, and sheds no further light on the distinction between solicitor and client costs and indemnity costs.

84 It is uncertain whether the Practice Note is intending to say that the reason the “‘indemnity costs’ incentive” has lost much of its efficacy since 1994 is due to the statutory reformation of the costs regimen which took place in 1994, as the first sentence of the note suggests, or due to the rule amendments, which did not take effect until 1998. If it is due to the 1994 reformation of the costs regimen, then nothing more is said about the changes introduced by this reformation. If it is due to the 1998 rule amendments, which the note goes on to discuss, then a further uncertainty arises. That is, it is uncertain whether the reason the “‘indemnity costs’ incentive” has lost much of its efficacy is because indemnity costs have been replaced in the DCR by (less generous) solicitor and client costs, or merely because recovery of the surcharge has been excluded, the rest of the assessment remaining the same.

85 In particular, the sentence “the Rule amendments substitute solicitor and client costs for indemnity costs, following the practice in most other States of Australia” is ambiguous. On the one hand, it could be interpreted to mean that the term “solicitor and client costs” has replaced the term “indemnity costs”, in keeping with the practice in other States; the implication is that the two terms are effectively different names for the same type of costs order. On the other hand, it could be interpreted as meaning that the concept of solicitor and client costs replaced the concept of indemnity costs, the implication being that the two types of costs are substantively different. I return to the latter proposition below.

The relationship between the Act and the District Court Rules

86 S208F(1A) of the Act states that “an assessment must be made in accordance with the operation of the rules of the relevant court or tribunal that made the order for costs”. Subsection (1A) was inserted in 1996, as noted above, but Hansard and other sources are silent on the reasons for its introduction. At first glance, this subsection would appear to direct the assessor back to the DCR, specifically in this case to Pt 39A r25, and thus to raise afresh the question of what “solicitor and client costs” means. If it does direct one back to the DCR, this could only be on the basis that s208F(1A) of Pt 11 of the Act is thereby disavowing any intent itself to regulate that which the Rules purport to regulate concerning assessment of costs.

87 I would reject that conclusion for the reasons which follow. I conclude that subs(1A) means that the assessment of costs on a fair and reasonable basis as outlined in subs(1) can find its detailed content in the rules of the relevant court or tribunal but only to the extent that the outcome is recognisably fair and reasonable. In other words, the Rules could not deem an outcome to be fair and reasonable if it were clearly not. Rather the Rules provide a more detailed exegesis of what is fair and reasonable. As I later explain in light of the case law, the DCR insofar as they deal with solicitor and client costs do not presently produce an outcome that would fall outside the Act’s notion of what is fair and reasonable. An expression like “fair and reasonable” leaves room for discretionary judicial choice though not unconstrained, in employing terms like “fair” and “reasonable” which the late Julius Stone called legal categories of indeterminate reference. The defining characteristic of such a category is that “it does not usually lead compellingly to any one decision in a concrete case, but rather allows a wide range for variable judgment in interpretation and application, approaching compulsion only at the limits of the range”. Julius Stone, “Legal System and Lawyers’ Reasonings” (Sydney, Maitland Publications Pty Limited, 1964) at 264. Limits of the range here, would be a cost outcome self-evidently not fair and reasonable.

88 There are several indications that Parliament intended that the Act prevail over the DCR, where the latter would be inconsistent with the Act. First, Pt 39A r1 sub-r2 states that “[t]he application of this Part is subject to the Legal Profession Act 1987 and the regulations made under that Act”. Second, the Act, as amended by the Legal Profession Reform Act 1993, performs the lion’s share of costs assessment regulation within the legislative regime of which the various courts rules also form a part. As noted above, the Act appears to provide for only two types of costs orders, party/party and indemnity. Third, s35 Interpretation Act 1987 provides that certain headings shall be taken to be part of the Act. Part 11 Division 6 Subdivision 3 of the Act is headed “Assessment of party/party costs”. This heading reinforces the interpretation that the Act allows for only two types of costs orders: party/party costs in the usual circumstance, and indemnity costs as an exception provided for by s208F(3). The Butterworths’ loose-leaf guide to Legal Costs New South Wales states unambiguously that “[f]rom 1 July 1994 there is no jurisdiction in NSW for judges to award costs on a solicitor and client basis. Costs ordered by a court or tribunal can only be on either a party-party or indemnity basis: s208F of the Legal Profession Act 1987”; see also Penrith City Council v Parks (No 2) at [13]. Then there is s161(6) of the District Court Act 1973 quoted earlier, which leaves little room for the Legal Profession Act to operate as a self-denying ordinance.

89 Ultimately, whether the Act prevails over the DCR does not resolve the issue. If the Act prevails over the DCR, there are only two types of costs orders that may be awarded, indemnity and party/party. But we have inescapably in the present case an actual order for costs on a solicitor and client basis. It must still be determined whether solicitor and client costs are to be assessed according to, or so as more closely to resemble, a “fair and reasonable” test as set out in s208F(2), or an indemnity basis as set out in s208F(3) and Pt 39A r13 DCR.

90 If the Act does not prevail over the DCR, on the basis of s208F(1A) or otherwise, and the costs assessor is to have regard to Pt 39A r25 and assess costs on a “solicitor and client basis”, then we are returned to the basic question. That question is what “assessed on a solicitor and client basis” means and whether its meaning is the same as the meaning of “indemnity basis”.

91 The legislative regime in New South Wales being of only limited assistance, I shall endeavour to elucidate the meaning of solicitor and client costs by analysing the case law which considers the issue and the equivalent costs provisions in other jurisdictions.

A “rather murky issue”: Common law

92 It was agreed that the expressions solicitor and client costs, solicitor-client costs and solicitor/client costs all have the same meaning. It was also agreed that solicitor and client costs are distinct from solicitor and own client costs, the latter being more generous, although the expressions are sometimes incorrectly used interchangeably.

93 Indeed, in the present case, the costs assessor and Review Panel referred to the solicitor and own client basis when making their assessment, even though they proceeded to assess costs according to the fair and reasonable test in s208F of the Act. (Nothing turns on this mistake in the present appeal.) It was further agreed that solicitor and client costs are different from party/party costs, in that the former are more generous, although how much more generous is not wholly clear. When costs are assessed on a party/party basis, there are usually allowed all costs as are necessary or proper for the attainment of justice or for enforcing or defending the rights of the party whose costs are being assessed. However, I believe s208F of the Act throws even this second proposition (the distinction between party/party costs and solicitor and client costs) into doubt and will discuss this below.

94 On the issue of the distinction between solicitor and client costs and indemnity costs, however, the case law is inconsistent. The claimant cited several cases in which solicitor and client costs and indemnity costs have been treated as identical: see Adams v Kennedy (supra); Lee v Kennedy (supra); Clark v Tasmania (No 2) (supra); Re Bond Corporation Holdings Ltd (1989) 1 WAR 465. However, in none of these cases was the meaning of the two terms at issue. Orders were simply made on the assumption that the terms were interchangeable. On the other hand, the weight of authority arising from cases which have examined the meaning of solicitor and client costs in some detail is that solicitor and client costs are distinct from indemnity costs, or at least have historically been distinct, even if more recent legislative developments may have eroded the distinction.

95 In Qantas Airways Ltd v Dillingham Corporation Ltd, (supra) Rogers J discussed the evolution of the solicitor and client basis for costs assessment. He attributed its development to the “yawning gap” which had arisen between costs recoverable by a successful party from the other party on a party/party basis and the costs payable by the successful party to its own legal representatives. He continued:

“In an effort to provide more complete indemnity for costs to a successful party in appropriate cases, particularly in matters of equitable jurisdiction, a costs order on a solicitor and client basis was evolved. The original approach on this scale of taxation was to allow "as many of the charges which he would have been compelled to pay his own solicitor for costs of action as fair justice to the other party will permit" (Daniel's Chancery Practice, 7th ed, p 1009, quoted with approval by A'Beckett J in Smith v Smith [1906] VLR 78 at 80). However, one of the Registrars who was kind enough to assist the parties in this case and myself in exploring the mysteries of taxation of costs said of taxation on this basis:

‘The approach taken is that it is [sic], although on an attorney and client basis, you are still looking at party/party costs. You approach taxation on a party and party basis only with a more liberal attitude. Items that strictly on a party/party basis you would not allow, you would allow. ’

One of the problems is that referred to by Mr Saddington (20 ALJ 423) that it has never been properly explained in what way the approach to taxation on a solicitor and client basis was to be more liberal…

Packer v Meagher

96 In EMI Records Ltd v Ian Cameron Wallace Ltd & Anor [1982] 2 All ER 980, Megarry VC held that, unless otherwise provided, an order for costs on an indemnity basis took effect as an order for costs on the “solicitor and own client” basis. An order for costs on the solicitor and own client basis would allow all costs except insofar as they are of an unreasonable amount or have been unreasonably incurred. However, as for solicitor and client costs, he concluded (at 991) that “although the effect of such an order is not clear, it may well be the same as that of an order on the common fund basis…”. He had earlier defined the common fund basis as follows (at 983):

'a reasonable amount in respect of all costs reasonably incurred'

Gibbs v Gibbs

little more than a party and party taxation conducted 'on a more generous scale'

Giles v Randall

97 Thus both Qantas and EMI Records treat an order for solicitor and client costs as allowing “reasonable” costs on a somewhat more generous scale than an order for party/party costs would allow. However, the test for party/party costs upon which the distinction between party/party costs and solicitor and client costs in these two cases was based was “all such costs as were necessary or proper for the attainment of justice or for enforcing or defending the rights of the party whose costs are being [assessed]”; EMI Records Ltd v Ian Cameron Wallace Ltd & Anor [1982] 2 All ER 980 at 983.

98 In Penrith City Council v Parks (No 2), the court examined Pt 11 Div 5B of the Act (ss198C-I). It caps costs in personal injury claims at $10,000 (in matters where the verdict does not exceed $100,000), except where costs are awarded on an indemnity basis in respect of legal services provided after an offer of compromise was made; see s198F. The court held that an order for solicitor and client costs under Pt39A r25 DCR was not inconsistent with Pt 11 Div 5B, in that a judge was not prevented from awarding costs on a solicitor and client basis by the provisions, although the costs awarded on that basis could not exceed the ceiling. The court thus distinguished between solicitor and client costs and indemnity costs; only the latter could exceed the $10,000 ceiling.

99 The claimant submitted, first, that Penrith was authority only for the construction of Part 11 Div 5B. Second, it was not inconsistent with the decision in Penrith that, for purposes other than the capping of personal injury costs, the tests for solicitor and client costs and for indemnity costs are the same. Penrith may be distinguishable on this basis, but is nonetheless an example of the courts making some distinction between solicitor and client costs and indemnity costs.

100 I pause here to consider the relevant legislation in other jurisdictions in Australia and further case law that pertains more directly to specific legislative provisions.

“A strange tangle”

EMI Records v Ian Cameron Wallace Ltd & Anor

: Legislative Regimes in other Jurisdictions

Supreme Court of New South Wales

101 Part 52 rule 33 of the New South Wales Supreme Court Rules (repealed 2005) defined “solicitor and client basis” as follows:

(1) All costs shall be allowed except as mentioned in the following subrules.

(2) Costs shall not be allowed in so far as they are of any unreasonable amount, unless the amount has been approved by the client.

(3) Costs shall not be allowed in so far as they are unreasonably incurred, unless incurred with the approval of the client.

(a) that the costs were reasonably incurred, or

102 The SCR definition of solicitor and client basis thus appears to adopt an “all costs except unreasonable costs” test which is very similar to the definition of indemnity costs in Pt 39A r13 DCR, which reads:

“On an assessment on the indemnity basis, all costs shall be allowed except in so far as they are of an unreasonable amount or have been unreasonably incurred, and any doubts which the assessor may have as to whether the costs were reasonably incurred or were reasonable in amount shall be resolved in favour of the receiving party.”

103 However, in discussing the distinction between solicitor and client costs and indemnity costs, Bryson J in Kumagai Australian Finance v Avarton Ltd (7 June 1991, unreported) made this observation in relation to Pt 52 r33 subr(4) SCR:

“The subrule [subrule(4)] dealing with the onus of proof, or at any rate with the order of presumption in favour and against allowance, is significant because of its contrast with the provisions of r28A. R28A relates to the indemnity basis in these words: ‘On a taxation on the indemnity basis, all costs shall be allowed except insofar as they are of an unreasonable amount or have been unreasonably incurred and any doubts which the taxing officer may have as to whether the costs were reasonably incurred or were reasonable in amount shall be resolved in favour of the receiving party.’…

What most strikingly distinguishes the indemnity basis under pt52 r28A from the solicitor and client basis under pt52 r33 is the order of consideration or presumption or onus of proof provision which in subr33(4) directs that where costs are incurred of an unusual nature such that they would not be allowed on a taxation of costs on a party and party basis, they shall not be allowed unless it was shown that they were reasonably incurred. There is another qualification in subpar (b) but this, like qualifications in subrs (2) and (3) relating to the position of a client would not fairly be applicable where the solicitor client basis was being adopted to determine an amount to be paid, not by the client but by someone else.

104 The definition of solicitor and client costs in r33 is contained in Pt 52 Div 5 of the old SCR. This division is said to apply to “any taxation under Pt 11 Div 5 of the Legal Profession Act 1987”; r32. Rule 32 was last amended on 26 February 1993. The Pt 11 Div 5 of the Act to which it refers is therefore Pt 11 Div 5 of the Act as it stood before the 1994 amendments, that is, the definition of solicitor and client costs in r33 relates to the old taxation of bills of costs scheme. Although Pt 52 Div 5 of the old SCR was not repealed when the 1994 amendments to the Act came into force, they nevertheless must have become obsolete. The old SCR definition of solicitor and client costs is thus of questionable relevance to cases post-dating the 1994 amendments to the Act.

105 No provision is made for costs on a solicitor and client basis under the new Civil Procedure Act and Rules, which largely replaced the old DCR and SCR in 2005. Section 98 of the Civil Procedure Act and Rules 42.2 and 42.5 Uniform Civil Procedure Rules 2005 now provide only for costs to be awarded on the “ordinary” basis or on an indemnity basis. The deletion of all references to solicitor and client costs from the legislative scheme should prevent disputes such as the present dispute from arising in the future.

Victoria and South Australia

106 In what follows, I am greatly indebted to the researches of counsel. The Victorian Supreme Court and County Court Rules and South Australian Supreme Court Rules do distinguish between solicitor and client and indemnity costs. The Supreme Court (General Civil Procedure) Rules 1996 (Vic) (to which the relevant provisions of County Court Rules of Procedure in Civil Proceedings 1999 (Vic) rules are identical in all but punctuation) define each as follows:

63.30 Solicitor and Client Basis

On a taxation on a solicitor and client basis all costs reasonably incurred and of reasonable amount shall be allowed.

63.30.1 Indemnity Basis

(1) Subject to paragraph (23), on a taxation on an indemnity basis all costs shall be allowed except insofar as they are of unreasonable amount or have been unreasonably incurred.

107 The Supreme Court Rules 1987 (SA) define the relevant terms as follows:

Bases of assessment of costs

Queensland

108 The legislation in the other States is not of great assistance. The Uniform Civil Procedure Rules 1999 (Qld) do not use the term “solicitor and client costs” but then r704(3) defines an order for indemnity costs as allowing “all costs reasonably incurred and of a reasonable amount”.

Western Australia

109 The Rules of the Supreme Court 1971 (WA) provide for indemnity costs where a party betters an offer of compromise in litigation (rule 24A.10). However, indemnity costs are not defined in the WA legislation (and it does not refer to solicitor and client costs). The Butterworths loose-leaf guide to Civil Procedure in Western Australian cites as authority for defining the meaning of indemnity basis a decision of Ipp J in Re Bond Corporation Holdings Ltd (supra) at 479:

Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants & Ors

110 The appellant submitted that Ipp J’s decision in that case should be interpreted as treating solicitor and client costs and indemnity costs as having the same meaning, that being effectively “all costs except unreasonable costs”. However, it is clear that Ipp J was in fact following the decision of Woodward J in Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants & Ors (1988) 81 ALR 397 to the effect that due to the uncertainty surrounding the two expressions, the costs assessor is dependent upon the terms of the order to define the extent of the indemnity (that is, the meaning of the order). In order to avoid confusion, Woodward J (and Ipp J in Re Bond Corporation) therefore both preferred to stipulate precisely that they intended their orders to be interpreted as orders for all costs except unreasonable costs, rather than simply using either the expression “solicitor and client costs” or “indemnity costs”, the ambiguity of which they acknowledged. These cases constitute an acknowledgement of the confusion surrounding these terms, rather than definitive decisions as to their meaning; see also Burnie Port Corp Pty Ltd v Bank of WA (supra) at [16].

111 In the Victorian case of Thomas & Anor v Southcorp Australia Pty Ltd & Anor (No 2) [2004] VSC 50, Balmford J [at 17-18] also followed Fountain Selected Meats but explicitly equated indemnity costs and solicitor and client costs:

112 However, Winneke P also made findings on the meaning of solicitor and client costs, with which Callaway JA largely agreed. Relevantly, Winneke P said at 147:

“Nor, in my view, does the complainant’s contention [that the legislative provision in question meant that, absent special circumstances, costs must be awarded on an indemnity basis] derive any support from the use of the words “costs reasonably incurred”. Those words are apt to describe costs on a party and party basis, as much as they are to describe costs on a solicitor/client basis, because such costs have always been regarded as the costs which are reasonably incurred in the attainment of justice between the parties.”

113 To quote Callaway JA more fully, he said:

“In Milosevic v Government Insurance Office of New South Wales (1993) 31 NSWLR 323 at 333 Kirby P. referred with approval to a passage in Saddington, Taxation of Costs between Parties , (1919), in which party and party costs were defined as “the expense which has been reasonably and properly incurred and not the expense which has been actually incurred”. His Honour also referred to Oliver, Law of Costs , (1960), p1, where it was said that a taxation as between solicitor and client is substantially a party and party taxation on a more generous scale…

……

Gibbs v Gibbs

Regal Life Insurance Ltd. v Pacific Financial Resources Pty. Ltd.

Australian Guarantee Corporation Ltd. v De Jager

Fountain Selected Meats (Sales) Pty. Ltd. v International Produce Merchants Pty. Ltd

114 These two judgements in Spencer v Dowling (1997) 2 VR 127 thus appear to support the distinction between solicitor and client costs and indemnity costs established in Qantas and EMI Records rather than the proposition for which Balmford J cites Callaway JA’s judgment as authority.

Tasmania

115 The Supreme Court Rules 2000 (Tas) provide for solicitor and client costs where a party betters an offer of compromise in litigation (Part 9 rule 289), but the term is not defined. However, the equivalent provision in the old Supreme Court Rules 1965 (Tas) (Order 24A rule 11(1)) was considered by Underwood J in Clark v Tasmania (No 2). Underwood J appears to have treated solicitor and client costs and indemnity costs as identical, but their precise definition and possible distinction was not at issue in the case. Moreover, in a subsequent case in which he considered the issue more directly, Burnie Port Corp Pty Ltd v Bank of Western Australia, Underwood J, after noting at [14] that “the distinction between costs taxed on a solicitor/client basis and costs taxed on an indemnity basis is a little difficult to detect”, declined to decide this “rather murky issue” in the absence of full submissions from counsel. Given this later decision, Underwood J cannot have intended his decision in Clark v Tasmania to be definitive on the meaning of the two expressions.

Offers of Compromise

116 All the costs assessment schemes in the different states make specific provision for costs after an offer of compromise has been made. In Victoria (r26.08(2)), Queensland (r360) and WA (r24A.10), where a party betters an unaccepted offer of compromise in litigation, he/she is entitled to costs assessed on an indemnity basis (noting that the Queensland test for indemnity costs is unusual). However, in South Australia (r41.04) and Tasmania (Pt9 r289), a party who betters an offer of compromise in litigation is entitled to solicitor and client costs.

Reasonable or Not Unreasonable costs – a question of onus?

117 It is clear that the NSW, Victorian and South Australian legislation distinguishes between costs reasonably incurred and costs not unreasonably incurred. An order for solicitor and client costs in these states entitles a party to “all costs reasonably incurred” whereas an order for indemnity costs entitles a party to all costs except unreasonable costs. This may be a fine distinction but it is a potentially significant one. Indeed, the appellant spent considerable time arguing that there is a difference between reasonable costs and not unreasonable costs, an argument premised on the fact that the test for indemnity costs (all costs except unreasonable costs) and the test in s208F(1) and (2) (fair and reasonable costs) are different tests. This is quite true, but the appellant’s argument depends on assuming what the appellant is required to prove, namely, that solicitor and client costs are the same as indemnity costs, an assumption that the weight of authority does not bear out.

118 Elaborating on the distinction between reasonable and not unreasonable costs in EMI Records Ltd v Ian Cameron Wallace Ltd & Anor [1982] 2 All ER 980 at 989, Megarry VC went to the heart of the matter when he said it is “a question of who gets the benefit of any doubt in the mind of the taxing master”:

a question of who gets the benefit of any doubt in the mind of the taxing master

119 As Bryson J pointed out in Kumagai (supra), the distinction contemplated by the NSW, Victorian and South Australian Supreme Court Rules is essentially one of onus. Where there is an order for solicitor and client costs, the onus is on the receiving party to show that the costs have been reasonably incurred. Where there is an order for indemnity costs, the onus is on the paying party to show the costs have been unreasonably incurred; see also Alpine Shire Council v MHSC Transportation Services Pty Ltd (No 2) [2002] VSC 58. I note, however, that Megarry VC rejected this approach in EMI Records at 989: “I do not think that it would be right to express this difference in terms of the burden of proof being shifted from the winner to the loser, though no doubt in many matters much of the argument during the taxation will proceed on these lines.”

Conclusion –

as to distinction between solicitor and client and indemnity costs.

120 By requiring the costs assessor to consider “whether or not it was reasonable to carry out the work to which the costs relate” and “what is a fair and reasonable amount of costs for the work concerned”, s208F(1) appears to place the onus of showing that costs were fair and reasonable on the receiving party. Thus in terms of onus at least, the “fair and reasonable” test in s208F appears to be consistent with an assessment of costs on a solicitor and client basis.

Party/party costs to be assessed on a “fair and reasonable” basis

121 As noted above, Part 11 Division 6 Subdivision 3 of the Act now bears the heading, since the 1994 reforms, of “Assessment of party/party costs”. It is clear that the test now to be applied to party/party costs is the “fair and reasonable” test in s208F rather than the “necessary or proper” test in Qantas and EMI Records. The test for party/party costs thus appears to have become very similar to the test for solicitor and client costs, as established in Qantas and EMI Records. I see this as having three possible alternative consequences, of which I prefer the first.

122 The first possible consequence is that the test for solicitor and client costs is effectively the same as the test for party/party costs as amended in 1994, that is, a “fair and reasonable” test. The costs assessors therefore applied the right test when they applied s208F(1) and (2) to the costs claim. However, in construing the meaning of solicitor and client costs, it must be kept in mind that if the test for solicitor and client costs were effectively the same as the test for party/party costs, this would have the effect of reducing the incentive for making offers of compromise under Pt39A r25 DCR. On the other hand, perhaps Practice Note 42 is referring to this (possible) conflation of party/party and solicitor and client costs when it says that “the ‘indemnity costs’ incentive to a plaintiff to make a reasonable offer of compromise has lost much of its efficacy since the 1994 reformation of the costs regimen.”

123 The second possible consequence is that a distinction remains between the “fair and reasonable” test for party/party costs under s208F and the common law “reasonable costs” test for solicitor and client costs. That is, the inclusion of the term “fair” constitutes a significant difference between the party/party test and the solicitor and client test. However, this is unlikely, since the common law test for solicitor and client costs as established in Smith (and discussed in Qantas) is also one of “fair justice”; see also Spencer v Dowling per Winneke P at 147; Pattison, “Costs assessment: current questions” (1995) 33(6) LSJ 28.

124 The third possible consequence is that, as the test for party/party costs appears to have become more generous under s208F, so too the test for solicitor and client costs may have become proportionately more generous and thus come more closely to resemble the test for indemnity costs. However, a plain reading of Practice Note 42 does not bear out this argument.

SUMMING UP

The First Issue

125 The weight of authority is that solicitor and client costs and indemnity costs are distinct, though the difference between them has been eroded by practice and by inconsistent amendments to the various legislative instruments that make up the costs assessment regime.

126 An order for solicitor and client costs will allow all reasonable costs or all costs as fair justice to the other party will allow. The onus of proving that the costs are reasonable falls on the receiving party.

127 Historically, solicitor and client costs were somewhat more generous than party/party costs. But now that the test for party/party costs is a fair and reasonable test under s208F, the gap between them has narrowed, if not disappeared altogether.

128 The argument that this proposition defeats the purpose of Pt 39A r25 has considerable force. One possible answer is that the 1998 amendments to the rules substituting solicitor and client costs for indemnity costs have indeed lessened the incentive to make offers of compromise. Having now had the advantage of reading Giles JA’s judgment I agree with what he concludes at [32] above as well as at [36]. In any event, to the extent that Pt 39A r25 is inconsistent with Pt 11 of the Act, s161(6) of the District Court Act denies power to make rules with respect to what is regulated by Pt 11 of the Act.

129 The Act thus prevailing over the DCR, an order for solicitor and client costs under Pt 39A r25 DCR could not have any efficacy except by reference to the “fair and reasonable” test in s208F(1) and (2) of the Act. In that context, s208F(1A) must be interpreted as meaning that the assessment of costs on a “fair and reasonable” basis can find its detailed content in the rules of the relevant court or tribunal, so long as they do not produce an outcome self-evidently not fair and reasonable. Here in any event, solicitor and client costs under the DCR do invoke a fair and reasonable standard. I am satisfied that there was no incompatibility with the Act in the actual cost outcomes reached under the assessment process; it simply reflects the range of possibilities encompassed by what is fair and reasonable.

130 That said, one would expect in practice that cost assessors would take into account the intended incentive for making and accepting reasonable offers of settlement by assessing at the generous end of the parameters of what is fair and reasonable. This is when litigation produced an outcome more favourable for the claimant than her declined offer, as here. However, a determination which is within those parameters is not appellably wrong, merely because it is not at that generous end in such circumstances, so long as it remains within the parameters of what is fair and reasonable. Cost assessment based on a criterion of what is fair and reasonable necessarily leaves significant room for discretion to the cost assessor within those parameters. So it was here.

Conclusion

131 The costs assessors therefore properly applied the correct test (the fair and reasonable test in s208F) and the appeal should be dismissed on that basis.

The Second Issue

132 Having decided that the costs assessors applied the correct test, it is strictly unnecessary for me to decide whether, even if the costs assessors applied the wrong test, the appellant failed to demonstrate that the application of the correct test would have resulted in a more favourable outcome for her.

133 The respondent submitted that even if the costs assessors applied a fair and reasonable test when they should have applied an indemnity costs test, it is not possible to demonstrate, given the subjective and discretionary nature of the assessment process, that application of the indemnity costs test would have achieved a different result. Similarly, the respondent argued that even if the argument that the inclusion of the word “fair” in s208F distinguishes this test from the common law solicitor and client test (all reasonable costs) is accepted, again it was not shown that this distinction made any difference to the amount of costs assessed.

134 Certainly, I agree that the difference between an assessment on a reasonable basis and an assessment on a fair and reasonable basis is likely to be negligible. However, I am satisfied that it is possible that a significantly larger sum could have been assessed had the indemnity test been applied. First, it is significant that the bill was $148,854.12, but this was reduced by more than half by both the costs assessor ($73,015.10) and the Review Panel ($70,204.33). This immediately suggests that there is the possibility of more than $70,000 that could be allowed, on application of the indemnity test. Second, there was evidence before Malpass AsJ which suggested that applying the indemnity test would produce a significant difference in assessed costs. The hourly rate charged for professional work was reduced from $300 to $250 per hour for principals, and from $250 to $200 per hour for employed solicitors, during the course of assessment. Given that a principal spent 216.1 hours on the matter and an employed solicitor 13.8 hours, this reduction alone represents a deduction of $11,495 or 16% of assessed costs. The appellant was therefore able to demonstrate the possibility of a different result, but that does not avail her, given my conclusion on the first issue.

OVERALL CONCLUSION AND ORDERS

135 The appellant therefore fails in her appeal. Though she succeeds on the second issue, it was not determinative of the result. I would order that the appellant pay the costs of the appeal. I would therefore propose orders as follows:

(2) The appellant to pay the respondent’s costs of the appeal.

136 BASTEN JA: I agree with the judgment of, and the orders proposed by, Giles JA.

**********

Citations

Bouras v Grandelis [2005] NSWCA 463

Most Recent Citation

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24

Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service (No 2) [2011] NSWCA 171

McCrohon v Harith [2010] NSWCA 67

C G Maloney Pty Ltd v Hutton-Potts [2006] NSWCA 136

Cases Cited

7

Statutory Material Cited

4

Alpine Shire Council v MHSC Transportation Services Pty Ltd (No 2) [2002] VSC 58

Burnie Port Corporation Pty Ltd v Bank of Western Australia Ltd (No 3) [2003] TASSC 132

Lee v Kennedy [2001] NSWCA 8

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CITATION:	Bouras v Grandelis [2005] NSWCA 463
HEARING DATE(S):	30 August 2005
JUDGMENT DATE:	16 December 2005
JUDGMENT OF:	Giles JA at 1; Santow JA at 43; Basten JA at 136
DECISION:	1. Grant leave to appeal and direct the filing of the notice of appeal within seven days.; 2. Dismiss the appeal with costs.

CATCHWORDS:	COSTS – costs assessment – meaning of “assessed on a solicitor and client basis” in Pt 39A r25(4) District Court Rules 1973 – whether same meaning as costs on an indemnity basis in Pt 39A r13 of the Rules – interaction of Rules with costs assessment regime in Pt 11 Division 6 Legal Profession Act 1987 – assessment of costs on “fair and reasonable” basis under s208F of the Act.
LEGISLATION CITED:	District Court Act s148A; s148B; s161(6) District Court Rules Pt 19A r9; Pt 39A r25; Pt 39A r13 Legal Profession Act 1987 s208A – s208I Supreme Court Rules Pt 52 r33
CASES CITED:	Adams v Kennedy [2001] NSWCA 7 Alpine Shire Council v MHSC Transportation Services Pty Ltd (No 2) [2002] VSC 58 Burnie Port Corp Pty Ltd v Bank of Western Australia Ltd [2003] TASSC 132 Clark v Tasmania (No 2) (1999) Tas SC 130 EMI Records Ltd v Ian Cameron Wallace Ltd (1983) 1 Ch 49; [1982] 2 All ER 980 Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants & Ors (1988) 81 ALR 397 Gibbs v Gibbs (1952) 1 All ER 942 Giles v Randall (1915) 1 KB 290 Kumagai Australian Finance v Avarton Ltd (Bryson J, 7 June 1991, unreported) Lee v Kennedy [2001] NSWCA 8 Milosevic v Government Insurance Office of New South Wales (1993) 31 NSWLR 323 Packer v Meagher (1984) 3 NSWLR 486 Penrith City Council v Parks (No 2) [2004] NSWCA 381 Qantas Airways Ltd v Dillingham Corporation Ltd (Rogers J, 14 May 1987, unreported) re Bond Corporation Holdings Ltd (1989) 1 WAR 465 re Public Trustee Act (2000) 1 Qd R 409 Spencer v Dowling (1997) 2 VR 127 Thomas & Anor v Southcorp Australia Pty Ltd & Anor (No 2) [2004] VSC 50
PARTIES:	Lily BOURAS (Appellant) Antonia Elizabeth GRANDELIS (Respondent)
FILE NUMBER(S):	CA 41192/04
COUNSEL:	P D GRAY-GRZESZKIEWICZ (Appellant) D P O’DOWD (Respondent)
SOLICITORS:	Deborah G Marriott, Dundas (Appellant) Keddies (Respondent)

LOWER COURT JURISDICTION:	Supreme Court
LOWER COURT FILE NUMBER(S):	SC 13072/04
LOWER COURT JUDICIAL OFFICER:	Malpass AsJ