Caruso v Built It Pty Ltd (in Liq) (No 4) - [2019] SASC 148

SUPREME COURT OF SOUTH AUSTRALIA
(Magistrates Appeals: Civil)
CARUSO v BUILT IT PTY LTD (IN LIQ) (No 4)
[2019] SASC 148
Judgment of The Honourable Justice Parker
19 August 2019
MAGISTRATES - APPEAL AND REVIEW - SOUTH AUSTRALIA - APPEAL TO SUPREME COURT - COSTS
MAGISTRATES - ORDERS AND CONVICTIONS - COSTS - DISCRETION OF COURT
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - COSTS - APPEALS AS TO COSTS - RELEVANT PRINCIPLES - WHERE WRONG EXERCISE OF DISCRETION
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - COSTS - INTERPRETATION OF PARTICULAR COSTS ORDERS - SOLICITOR AND CLIENT
This is an appeal against a decision of a Magistrate to award costs on a solicitor/client basis in relation to an argument about liability for the costs of a trial and the fixing of interest on the judgment sum.
The appellant advances two arguments concerning the costs of the costs argument. First, he contends that because he had partial success on the costs argument, the Magistrate erred by ordering him to pay the respondent’s costs of that argument on a solicitor/client basis. Secondly, the appellant contends that because the Magistrates Court (Civil) Rules do not fix a scale upon which solicitor/client costs can be assessed, the order made by the Magistrate is ineffective.
Held, per Parker J, upholding the appeal:
1. An order of the Magistrates Court for payment of costs on a solicitor/client basis is not limited to the Supreme Court scale or any other scale. Costs on a solicitor/client basis will be assessed in accordance with the rate agreed between solicitor and client, subject to the proviso that the rate must be reasonable and that the costs must also have been reasonably incurred (at [9]-[22]).
2. The Magistrate’s failure to provide any explanation as to the basis upon which the costs of the costs argument had been determined combined with the failure to refer in any way to the appellant’s partial success on the arguments about interest and costs, indicates that there has been a process error in the House v The King sense. There has also been an outcome error in that the award of solicitor/client costs against the appellant in relation to an argument in which he had substantial success was manifestly unjust (at [23]-[26]).
Supreme Court Civil Rules 2006 (SA) rr 264, 288; Magistrates Court (Civil) Rules 2013 (SA) rr 106, 108, referred to.
Willing v Hollobone (1972) 3 SASR 532; House v The King (1936) 55 CLR 499, applied.
Caruso v Built It Pty Ltd (in liq) (No 2) [2019] SASC 125; Caruso v Built It Pty Ltd (in liq) (No 3) [2019] SASC 147; Citibank v Pirrotta [1998] ANZ ConvR 442, considered.

WORDS AND PHRASES CONSIDERED/DEFINED
"solicitor/client costs", "costs as between solicitor and client"

CARUSO v BUILT IT PTY LTD (IN LIQ) (No 4)
[2019] SASC 148

PARKER J: This is an appeal against a decision of a Magistrate to award costs on a solicitor/client basis in relation to an argument about liability for the costs of a trial and the fixing of interest on the judgment sum. For the reasons that follow, I uphold the appeal.
Background
In Caruso v Built It Pty Ltd (in liq) (No 2), I granted permission to appeal under r 288(1)(b) of the Supreme Court Civil Rules 2006 (SA), and also leave to appeal under s 471B of the Corporations Act 2001 (Cth).[1] I restricted the permission and leave to argument about whether the Magistrate had erred in awarding the costs of an application for costs and interest on a solicitor/client basis.
[1] [2019] SASC 125.
In Caruso v Built It Pty Ltd (in liq) (No 3), I dismissed an interlocutory application in which the appellant sought to widen the grounds of appeal to include an attack on the orders made by the Magistrate with respect to the costs of the trial in the Magistrates Court.[2]
[2] [2019] SASC 147.
My two earlier judgments set out the history of the matter and it is unnecessary to repeat that material.
In the judgment dated 14 September 2017, the Magistrate awarded judgment against the appellant in the sum of $33,938.50 “plus interest and costs to be agreed or taxed”. The Magistrate did not specify at that time the basis upon which the costs were to be assessed. On 21 November 2017, the respondent applied for the award of costs on either a contractual indemnity basis in the sum of $121,528.63, or on an indemnity basis. The respondent also sought an order for payment of interest at the rate of 2% specified in the contract. The costs claimed at that time by the respondent comprised solicitor fees in the sum of $61.278.80, counsel fees totalling $30,800.00 and court fees of $292.00.
On 30 November 2018, the Magistrate made orders concerning costs, interest and related matters. His Honour awarded the respondent costs on a party/party basis up until the close of the second day of the trial, and costs on a solicitor/client basis from the commencement of the third day of the trial onward. The Magistrate also awarded interest at the rate of 2% per month up until 1 October 2014 (the date on which the claim was commenced) and thereafter at the Court rate of 10% per annum.
The Magistrate did not specifically address in his reasons the basis upon which the costs incurred by the respondent in relation to the argument about costs were to be assessed. However, the parties have proceeded on the basis that his Honour’s order that costs be paid by the appellant on a solicitor/client basis after the second day of the trial also extended to the argument about costs which occurred over a year later. As I considered that the appellant had an arguable case in relation to the costs incurred in the costs argument, I granted permission and leave to appeal only in relation to that issue.
In essence, the appellant advances two arguments concerning the costs of the costs argument. First, he contends that because he had partial success on the costs argument, the Magistrate erred by ordering him to pay the respondent’s costs of that argument on a solicitor/client basis. Secondly, the appellant contends that because the Magistrates Court (Civil) Rules 2013 (SA) do not fix a scale upon which solicitor/client costs can be assessed, the order made by the Magistrate is ineffective.
Failure to refer to the Supreme Court scale
I will first consider the contention by the appellant that the award of costs on a solicitor/client basis by the Magistrate was ineffective because the Magistrates Court (Civil) Rules do not fix a relevant scale against which costs can be assessed.
Rule 106(4) of the Magistrates Court (Civil) Rules provides that “[w]here proper cause exists the Court may order that a successful party is entitled to costs on a solicitor client basis.” The Magistrate clearly stated the reasons why he had awarded costs on a solicitor/client basis. In Caruso v Built It Pty Ltd (in liq) (No 2), I refused permission to appeal against that decision on the basis that the appellant did not have an arguable case (in respect of the costs of the trial).
While the Supreme Court Civil Rules do not apply to proceedings in the Magistrates Court, it is useful to refer to the definition of “costs as between solicitor and client” contained in those rules. Rule 264(5) states:
(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 incurred by the party in the conduct of the litigation to the extent that the party entitled to the costs shows them to have been reasonably incurred); …
Rule 264(5)(b) goes on to define indemnity costs. A note to r 264(5) explains that the only difference between solicitor and client costs and indemnity costs is that in the former case the onus lies on the party entitled to costs to show that they were reasonably incurred, while in the latter case the party liable for costs must demonstrate that the costs were unreasonably incurred.
While the Supreme Court Civil Rules have no application to the present matter, they do illustrate that solicitor/client costs may be awarded without reference to a particular scale. When that occurs, the party in whose favour an order has been made is entitled to payment of the actual costs that they incurred, unless those costs were unreasonable.
Williams J (with Cox and Mullighan JJ agreeing) discussed in Citibank v Pirrotta the different meanings that may be given in particular circumstances to an order that costs be paid on a solicitor/client basis.[3] I did not find that discussion to be of any assistance with the present issue.
[3] [1998] ANZ ConvR 442; [1998] SASC 6603.
The issue was considered by Hogarth J (with Sangster J agreeing) in Willing v Hollobone.[4] Hogarth J noted that an order for payment of costs “as between solicitor and client” means “as between the opposing party and his solicitor”. While such an order gives a more complete indemnity to the successful party than an order for party/party costs, Hogarth J noted that not all costs will necessarily be allowed. His Honour contrasted an order for solicitor/client costs with an order that costs be assessed “as between solicitor and own client”. An order in the latter terms provides a complete indemnity.
[4] (1972) 3 SASR 532 at 540 (Hogarth J).
The commentary in Magistrates Court Practice SA at paragraph [MCCR.106.370] states that solicitor/client costs are usually ordered on the Supreme Court scale or a percentage of that scale.[5] However, the commentary notes that if it is intended that a party have a full cost recovery, the order might not refer to the Supreme Court scale because many firms of solicitors charge on a different basis. The commentary suggests that if an order for solicitor/client costs does not refer to a scale, costs may be allowed on the basis of any relevant cost agreement between the solicitor and the client. However, a charge may be disallowed if it was unreasonable. The commentary cites the decision of the Full Court in Citibank v Pirrotta as authority for the proposition that the onus of establishing that an item of costs was unreasonable lies on the party making that assertion, and not on the party claiming the costs.[6]
[5] Thomson Reuters, Magistrates Court Practice SA (at 15 August 2019) at [MCCR.106.370].
[6] [1998] ANZ ConvR 442; [1998] SASC 6603.
In addition to referring to Magistrates Court Practice SA, I have also considered the views expressed by GE Dal Pont in Law of Costs[7] and the commentary in Quick on Costs[8] and also Legal Costs South Australia.[9]
[7]    GE Dal Pont, Law of Costs (LexisNexis Butterworths, 3^rd ed, 2013).
[8]    Roger Quick and Elizabeth Harris, Thomson Reuters, Quick on Costs (at 15 August 2019).
[9]    Peter Norman and Jill Grace, LexisNexis Butterworths, Legal Costs South Australia (at 15 August 2019).
There is nothing in Dal Pont or Quick that contradicts the views expressed in Magistrates Court Practice SA. To put that another way, neither source suggests that costs cannot be awarded on a solicitor/client basis other than by reference to a prescribed scale.
The commentary at paragraph [20.1260] in Quick refers to the principle that where costs are awarded as between solicitor and client they are to be determined by “liability to the solicitor and fair justice to the other party”. In other words, costs are to be assessed at the rate agreed between solicitor and client unless that rate is unreasonable.
Of those sources, the only contrary view is found at paragraph [17,101] in Legal Costs South Australia, where it is stated that an order for solicitor/client costs made by the Magistrates Court should refer to an appropriate percentage of the Supreme Court scale. However, that observation is made in the context of a suggestion that r 106(4) of the Magistrates Court (Civil) Rules authorises the making of an order for costs on an indemnity basis. The commentary goes on to suggest that because solicitor/client costs are provided as an indemnity the order may be at a rate greater than the Supreme Court scale.
I consider the commentary in Magistrates Court Practice SA to be consistent with the observation of Hogarth J in Willing v Hollobone. In other words, an order of the Magistrates Court for payment of costs on a solicitor/client basis is not limited to the Supreme Court scale or, for that matter, any other scale. Costs on a solicitor/client basis will be assessed in accordance with the rate agreed between solicitor and client subject to the proviso that the rate must be reasonable and, of course, the costs must also have been reasonably incurred. However, in some circumstances so as to provide greater certainty, it may be good practice for the Magistrates Court to specify a percentage of the Supreme Court scale when it awards costs on a solicitor/client basis.
For the preceding reasons, I reject the contention advanced by the appellant that the costs order made by the Magistrate was ineffective because it did not refer to the Supreme Court scale, or any other applicable scale. It would have been open to the Magistrate to make an order that restricted the solicitor/client costs to the Supreme Court scale or some percentage of that scale. However, as his Honour did not adopt that approach, the costs are to be computed in accordance with the rate agreed between the respondent and his solicitor, subject to the proviso that the quantum of the fees must be reasonable, and also that those costs must have been reasonably incurred.
The appellant’s partial success
I turn to the appellant’s contention that the Magistrate failed to recognise that he was partly successful in relation to the costs and interest argument. The respondent had originally claimed interest in the sum of $29,157.83 up until the date of judgment. The basis for that claim was the respondent’s contention that it was entitled to interest at the rate of 2% per month on monies outstanding in accordance with the default clause in the building contract entered by the parties. However, the Magistrate only partly accepted that contention. His Honour awarded interest at the rate of 2% per month up until 1 October 2014, being the commencement date of the proceedings. Thereafter, the Magistrate awarded interest at the Court rate of 10% per annum. Thus, the respondent’s claim for interest was reduced from $29,157.83 to $11,921.80. That was a reduction of $17,236.03. To put the matter another way, the respondent was awarded approximately 41% of the interest that it had claimed.
The respondent had also contended that it was entitled to payment of its legal costs on a contractual indemnity basis, pursuant to cl 6 of the building contract. The Magistrate rejected that contention on the basis that costs could only be awarded on a contractual basis if the relevant clause was plain and unambiguous. His Honour concluded that the language used in the relevant contractual clause was insufficient to form the basis for an award of indemnity costs. The Magistrate also ordered that the respondent was entitled to its costs from the commencement of the proceedings up until the end of day two of the trial on a party/party basis. Thereafter, the respondent was entitled to its costs on a solicitor/client basis from the commencement of day three of the trial onward. His Honour commented that the order “expresses the court’s disapproval of the defendant’s bloody minded approach to an unreasonable case.”
While the appellant has provided to the Court a document that sets out in considerable detail the various claims for costs and interest made by the respondent, and counsel also addressed the Court on that issue, it is not absolutely clear to me what was the reduction in the costs claimed by the respondent as a result of the decision of the Magistrate to reject its claim for indemnity costs under the contract. Clearly, there would be a substantial difference between party/party costs up to the end of day two of the trial, and either solicitor/client or indemnity costs up to that point. While the precise difference in quantum remains unclear, I accept that the entitlement of the respondent to costs was very significantly reduced on account of the rejection by the Magistrate of its claim for indemnity costs prior to day three of the trial.
It is clear that the appellant had significant, but not complete, success on the costs and interest argument. While the Magistrate undoubtedly had a very wide discretion as to the award of costs, I consider that the failure to provide any explanation as to the basis upon which the costs of the costs and interest argument had been determined, combined with the failure to refer in any way to the appellant’s partial success on that argument, indicates that there has been a process error in the House v The King sense.[10] I also consider that there has been an outcome error in that the award of solicitor/client costs against the appellant in relation to an argument in which he had substantial success was manifestly unjust.
[10] (1936) 55 CLR 499.
I therefore set aside the decision of the Magistrate to award costs on a solicitor/client basis in relation to the argument about costs and interest in 2018. The Magistrate did not identify any conduct by the appellant in relation to the costs and interest argument that may have justified solicitor/client costs. The respondent was also unable to identify any such consideration. In those circumstances, I determine that the respondent should have its costs in relation to its application for orders dealing with costs and interest on a party/party basis. Given the respective success of the parties in relation to that aspect of the proceedings, I determine that the appellant should pay 50% of the costs incurred by the respondent in relation to the application for costs and interest.
As I noted in my first judgment in these proceedings, I am concerned that the solicitor’s fees incurred in relation to the costs and interest argument are said to be $41,282.00 and the counsel fees $4,840.00. While, in the absence of agreement between the parties, the quantum of costs must determined by the Magistrates Court on a taxation under r 108 of the Magistrates Court (Civil) Rules, the amounts claimed (particularly the solicitor’s fees) seem extraordinarily high for what was apparently a relatively straightforward argument about costs.
Conclusion
For these reasons, I uphold the appeal, vary the order made by the Magistrate’s Court on 9 January 2019[11] such that the respondent is entitled to 50% of the costs it incurred in relation to its application for the award of costs and interest, on a party/party basis.
[11] Although the Magistrate’s judgment as to costs and interest is dated 30 November 2018, the corresponding orders were not sealed until 9 January 2019.
For the avoidance of any doubt, the Magistrate’s orders remain unaltered in respect of the costs of the trial.
I will hear the parties as to the costs of the appeal.