Cornwall & Ors v Rowan (No 4) - [2006] SASC 111

SUPREME COURT OF SOUTH AUSTRALIA
(Full Court)
CORNWALL & ORS v ROWAN (No 4)
Judgment of The Full Court
(The Honourable Justice Bleby, The Honourable Justice Besanko and The Honourable Justice Sulan)
13 April 2006
PROCEDURE - COSTS - TAXATION - ASSESSMENT IN LIEU OF TAXATION
Application by seventh, eleventh and twelfth defendants for lump sum payment of costs pursuant to Supreme Court Rule 101.01(1)(a) - Sealed order of Full Court awarding defendants' costs of action and appeal - Where preparation of a bill in taxable form complex and expensive - Whether application for award of lump sum can be made after making sealed order for costs - Whether application under Supreme Court Rule 84.12 is necessary - Discretion to order lump sum costs in lieu of taxed costs – Consideration of matters relevant to awarding lump sum – Whether sufficient evidence to justify fixing lump sum - Assessment of a lump sum figure - Lump sum awarded.
Supreme Court Rules 1987 (SA) r 84.12, r 101.01(1)(a), r 101.07(5), r 101.07(6), r 101.13, referred to.
Beach Petroleum NL & Anor v Johnson & Ors (No 2) (1995) 57 FCR 119, applied.
Smoothpool & Anor v Pickering & Ors [2001] SASC 131, discussed.
Australasian Performing Rights Association Ltd v Marlin [1999] FCA 1006; Saizeriya Co Ltd v Peregrine Management Group Pty Ltd [2005] FCA 1174; Emanuele v Dau (1996) 133 FLR 312; Sony Entertainment (Australia) Ltd v Smith (2005) 215 ALR 788; Hadid v Lenfest Communications Inc [2000] FCA 628; Harrison & Anor v Schipp (2002) 54 NSWLR 738; Leary v Leary [1987] 1 All ER 261; Microsoft Corporation v Jiang [2003] FCA 101, considered.

CORNWALL & ORS v ROWAN (No 4)
[2006] SASC 111
Full Court: Bleby, Besanko and Sulan JJ
THE COURT:
Background

On 1 April 2005 this Court delivered judgment on a complex series of appeals against the orders of the trial Judge which followed a trial lasting many months. In disposing of the appeals the Court made the following relevant orders:
1.The appeals of the first, second, third, fourth, fifth, seventh, eighth, ninth, tenth, twelfth and thirteenth defendants be allowed.
2.     The cross-appeal of the plaintiff be dismissed.
3.The judgments dated 12 July 2002, 18 February 2003 and 28 February 2003 be set aside.
4.(1)     …
(4)     The plaintiff’s action against the third, fourth, fifth, sixth, seventh, eighth, ninth, tenth, eleventh, twelfth and thirteenth defendants be dismissed.
…
(8)     Subject to para.(9) the plaintiff pay to the fifth, seventh, eleventh, twelfth, and thirteenth defendants their costs of action provided that the costs payable to the fifth defendant of and incidental to its representation at the trial shall be in respect of no greater attendance than that of the thirteenth defendant at the trial.
(9)     The first and second defendants pay to the fifth, seventh, twelfth and thirteenth defendants their costs of the post-judgment contribution proceedings between the defendants.
…
(13)   The plaintiff pay to the fifth, seventh, eleventh, twelfth and thirteenth defendants their costs of the appeal.
The effect of these orders as between the plaintiff and the seventh, eleventh and twelfth defendants (“the Commonwealth defendants”) is that the plaintiff must pay the Commonwealth defendants both their costs of the action and of the appeal. By virtue of r 101.07(6)(b) of the Supreme Court Rules these orders are taken to mean costs as between party and party, as that expression is defined in r 101.07(6)(a). By r 101.07(5) the order in the form it was made is authority for the taxation of costs.
By Notice for Specific Directions filed on 24 August 2005 the Commonwealth defendants have applied for an order that the costs of the Commonwealth defendants to be paid by the plaintiff pursuant to the orders of the Full Court be assessed on a lump sum basis pursuant to Supreme Court r 101.01(1)(a).
In order to overcome any argument that the Court, having made the orders as to costs, is functus officio, the Commonwealth defendants apply by way of alternative pursuant to r 84.12 of the Supreme Court Rules to vary the order to provide that the costs of the Commonwealth defendants to be paid by the plaintiff be determined by way of lump sum. Rule 84.12 provides that the Court may vary or set aside a judgment or order “at any time if the justice of the case so requires”.
Whether an application under Rule 84.12 is necessary
The primary argument of the Commonwealth defendants is that it is not necessary to invoke r 84.12 in order to enable the Court now to make an order for payment of the Commonwealth defendants’ costs by way of lump sum, notwithstanding that the original order of the Full Court has been sealed and is authority only for the taxation of party and party costs. The Commonwealth defendants rely on the provisions of r 101.01(1)(a) itself. That rule provides:
(1)Notwithstanding the following provisions of this Rule and of the provisions of Rule 101A.01, the costs of any party, the amount thereof, the person by whom, or the fund or estate, or portion of an estate, out of which they are to be paid are in the discretion of the Court, and the Court may:
Award a lump sum
(a) award a lump sum in lieu of, or in addition to, any taxed costs.
There is no doubt that the Commonwealth defendants could have made an application to the Full Court for the award of a lump sum before the order for costs was made, and that the Court then could have made such an order. It is not inappropriate that such an order be made at the conclusion of a long and complex matter.[1] The principles behind the granting of such an order and the sort of material which must be placed before the Court to justify such an order are discussed below. However it may not always be easy for a party to decide or for solicitors to advise, before a costs order is made, whether a lump sum should be applied for. A number of considerations may need to be brought to bear on that decision including, in some cases, inquiries as to the solvency of the party against whom the order is made.
[1] Beach Petroleum NL & Anor v Johnson & Ors(No 2) (1995) 57 FCR 119.
The Court’s power to make an order under r 101.01(1)(a) after an order for costs is sealed was considered by Lander J in Smoothpool v Pickering.[2] Lander J concluded[3] that, having previously made an order for costs, he was not functus officio for the purpose of r 101.01(a). He pointed out[4] that if the defendants’ contention was correct, it would mean that a master would have jurisdiction to make an order for a lump sum after a judge had made an order for taxed costs by virtue of the powers conferred on the master by r 101.13, but that a judge would not be entitled to make an order for a lump sum after he or she had made such an order. However, the power of a master to award a lump sum under r 101.13 occurs in rather different circumstances and may only be exercised “on a taxation of costs”. That may well mean only after the party entitled has lodged a bill in taxable form and the master is then able to make an overall assessment based on the form and content of that bill. That is what this application seeks to avoid. We agree with the conclusion of Lander J, although our reasons for reaching that conclusion, which are set out below, may differ from those put forward by his Honour.
[2] [2001] SASC 131.
[3] Ibid at [39]-[42].
[4] At [42].
A similar procedure to that approved by Lander J seems to have been followed by von Doussa J in Beach Petroleum NL v Johnson[5] where the awarding of a lump sum followed an earlier order for payment of costs to be taxed. No point appears to have been taken about the Judge’s power to do so. Furthermore, the relevant rule of the Federal Court appears to have been framed in a manner which would permit a subsequent variation to the original order. It is not in the same terms as r 101.01(1)(a).
[5] (1995) 57 FCR 119 at 162. See also Australasian Performing Rights Association Ltd v Marlin [1999] FCA 1006 at [2]; Saizeriya Co Ltd v Peregrine Management Group Pty Ltd [2005] FCA 1174 at [31].
Possibly because of the alternative application of the Commonwealth defendants, the plaintiff did not seek to argue that r 101.01(1)(a) does not confer a power on the Court to award a lump sum after a final order for costs has been sealed.
As mentioned earlier, there will often be difficulty in obtaining instructions and in making a decision as to whether an application should be made for an order for costs payable by way of a lump sum. It will also take time to assemble the necessary material to justify such an order on the merits. If the order for a lump sum cannot be made after an order for costs has been made, such delays may well cause substantial delay in resolving a party’s entitlement to costs, and much time and energy may be wasted if the application for costs is unsuccessful. There are obvious advantages in being able to make the application for a lump sum after the entitlement to costs has been decided. There is also a certain inconvenience in having to rely on r 84.12 in order to justify a variation of the previous order.
The fact that r 101.01(1)(a) enables the award of a lump sum “in lieu of or in addition to any taxed costs” is significant. The phrase “in lieu of” can mean either that an order for a lump sum may be made instead of making an order that costs be taxed or that an order for a lump sum can be made in place of or in substitution for an order for taxed costs already made. However, the phrase “in addition to” plainly contemplates an order for a lump sum where an order for taxed costs has already been made. Consistency would require an interpretation that a lump sum in lieu of taxed costs also allows such an order to follow an order for costs to be taxed. As that interpretation is open, convenience would demand that it be applied, rather than holding that an order for the payment of a lump sum is an alternative which can only be considered at the time when an order for costs is made. It is therefore not necessary for the Commonwealth defendants to rely on the alternative application.
Factors affecting the exercise of the discretion
A number of authorities indicate that it is appropriate to order a lump sum payment in one or more of the following circumstances:
(1)In long and complex cases where the question may more conveniently be dealt with by way of lump sum rather than taxation;[6]
(2)Where full recovery of taxed costs is not anticipated or is questionable;[7]
(3)In matters where the taxation process is likely to be costly and protracted. This may be because of the length and complexity of the case as in paragraph (1) above or because of the behaviour of one of the parties.[8]
[6] Beach Petroleum NL & Anor v Johnson& Ors(No 2) (1995) 57 FCR 119 at 121; Emanuele v Dau (1996) 133 FLR 312 at 319; Smoothpool Nominees Pty Ltd v Pickering [2001] SASC 131 at [9]; Sony Entertainment (Australia) Ltd v Smith (2005) 215 ALR 788 at [189].
[7] Hadid v Lenfest Communications Inc [2000] FCA 628 at [14]; Harrison & Anor v Schipp (2002) 54 NSWLR 738 at [21] and [30]; Sony Entertainment (Australia) Ltd v Smith (2005) 215 ALR 788 at [194]-[195].
[8] Leary v Leary [1987] 1 All ER 261 at 265; Sony Entertainment (Australia) Ltd v Smith (2005) 215 ALR 788 at [192]-[193]; Microsoft Corporation v Jiang [2003] FCA 101.
The total amount relied on by the Commonwealth defendants as having been incurred by way of costs and disbursements relating both to the trial and to the appeal is $564,680. That was the amount they initially sought by way of lump sum. As some indication of the length and complexity of the matter, we note the following. The trial occupied 68 sitting days and the appeal, six sitting days. The action was commenced in 1990, the discovery process took place over the period from 1998 to 2001, and the trial commenced in June 2001. The issues were numerous and complex.
The amount claimed is substantial, and the process of taxation is likely to be drawn out, burdensome and expensive. There is evidence before the Court that the plaintiff is unlikely to be able to meet the amount claimed by the Commonwealth. It is therefore probable that the costs involved in a taxation of costs will not be recovered. Subject to there being sufficient information available upon which this Court can fix a lump sum, this is an appropriate case in which the discretion to do so can properly be exercised in favour of the applicant.
Whether a lump sum can properly be assessed
In Beach Petroleum NL v Johnson[9] von Doussa J said:
I agree however with the submission of Mr Rice that before exercising the power to fix a gross fee, the Court should be confident that the approach taken to estimate costs is logical, fair and reasonable. On the one hand the Court must be astute to prevent prejudice to the respondents by overestimating the costs, and on the other hand must be astute not to cause an injustice to the successful party by an arbitrary “fail safe” discount on the cost estimate submitted to the Court: Leary v Leary.[10]
[9] (1995) 57 FCR 119 at 123.
[10] [1987] 1 WLR 72 at 76; [1987] 1 All ER 261 at 265.
Along similar lines, Giles JA in Harrison v Schipp[11] said:
Of its nature, specification of a gross sum is not the result of a process of taxation or assessment of costs. As was said in Beach Petroleum NL v Johnson (at 124), the gross sum “can only be fixed broadly having regard to the information before the Court”; in Hadid v Lenfest Communications Inc[12] (at [35]) it was said that the evidence enabled fixing a gross sum “only if I apply a much broader brush than would be applied on taxation, but that … is what the rule contemplates”. The approach taken to estimate costs must be logical fair and reasonable (Beach Petroleum NL v Johnson (at 123); Hadid v Lenfest Communications Inc (at [27]). The power should only be exercised when the Court considers that it can do so fairly between the parties, and that includes sufficient confidence in arriving at an appropriate sum on the materials available (Wentworth v Wentworth (Court of Appeal, 21 February 1995, unreported) per Clarke JA).
[11] (2002) 54 NSWLR 738 at 743, [22].
[12] [2000] FCA 628.
In this case the solicitor for the Commonwealth defendants was the Australian Government Solicitor (“AGS”). The Commonwealth defendants provided copies of all accounts for costs rendered by the AGS for the conduct of the matter, together with copies of invoices from counsel for all counsel fees incurred and amounts of other disbursements. The accounts for work performed by solicitors, while giving a general description of the nature of the work performed, were based entirely on a time charging system, the rate depending upon which solicitor at which level performed the service. However, the relevant schedules of costs prescribed in the Supreme Court Rules are principally item-based. Relatively few are time-based. Without more, that presents an immediate difficulty for a Court asked to assess a lump sum which is logical, fair and reasonable.
Beach Petroleum NL v Johnson[13] was a case where a bill of costs had been partially prepared in taxable form according to the relevant scale of the Federal Court before that exercise was abandoned in favour of the application for a lump sum. That bill nevertheless exposed for scrutiny the work performed for some of the period during which the litigation was conducted. It enabled a comparison of the scale costs with the costs charged on a time basis. The Court also had evidence from a solicitor, who was an expert in drawing and attending on taxation of bills of costs, as to the reasonableness of the hourly rates charged. He also provided a complex estimate of the costs incurred thereafter, including out of pocket expenses. That was a particularly complex matter where the costs claimed were many times those claimed in this matter. Nevertheless there are similarities in the length and complexity of the litigation.
[13] (1995) 57 FCR 119.
The question remains as to the nature of the information that should be provided to a Court asked to assess a lump sum where, on the face of it, the actual charges incurred bear little relationship to the itemised scale under which a bill of costs would normally be taxed. A necessary starting point is the actual detailed accounts rendered by the solicitor to the client. The weight that can be given to this will depend on whether it is an arms length engagement or some closer relationship. In this case, the fact that the charges were levied by one Government department to another means that those charges must be scrutinised carefully. The Court has done that and is satisfied that there is no evidence of overcharging by the AGS.
Mr Stanley, counsel for the Commonwealth defendants, by reference to hourly rates allowed for some items in the scale and to the rates actually charged by the AGS, and by reference also to the counsel fees charged and the Master’s Guide to counsel fees, sought to justify a lump sum equal to the amount actually charged by the AGS. However, that gave little or no guidance to the reasonableness of the time taken for particular items for which costs are allowed on the relevant scale.
In most cases it would be desirable that an independent costs expert review the file and the charges made and perhaps perform some random sample checks of the costs charged for work performed against what would have been allowable under the relevant scale. There may be other ways of checking the accuracy of the amounts actually billed by the solicitor. If an estimate is to be made by a Court which is not accustomed to assessing or taxing costs and the estimate is to be logical, fair and reasonable, some expert evidence of that nature will generally be necessary. It was not provided in this case, and that presents some difficulty.
Depending on the nature of other information supplied, that failure may sometimes be fatal to an application for the awarding of a lump sum. Mr Stanley, recognising that difficulty during the course of argument and, on instructions, invited us to fix a lump sum by discounting the total solicitors fees charged by the AGS by one third, by discounting the total counsel fees charged by 20% and by discounting the other disbursements claimed by 30%, thus arriving at a lump sum figure of $398,559.
While this concession may recognise that the more unreliable the information provided to the Court, the less likely the applicant is to be able to justify a figure close to the amount charged, it is still an arbitrary result and not in keeping with the principles upon which the discretion must properly be exercised.
The exercise of the discretion in this case
While it is tempting to say that the applicant must fail in the absence of any attempt to link the hourly rates charged to what would have been charged on an application of the various cost scale items, the circumstances of this case do lend themselves to a proper assessment of a lump sum but one which may of necessity be at the lower end of the range that could otherwise be justified. What is significant in this case is that a major component of the claim for costs, namely the attendance of a solicitor and the appearance of counsel at the trial and on appeal, is readily translatable from a time‑charging scale to the relevant items in the scales provided by the Rules.
A significant item of solicitor’s costs is that associated with an instructing solicitor being in court for a 68 day trial and for the appeal for which a time charge is allowable under the relevant scale. A comparison can be made between the rate charged by the AGS and the rate allowed under the scale. In this case, for some of the period, the actual charge was below the rate applicable under the scale. At other times it was slightly above. Given the apparent reasonableness of the rates charged and the fact that the item appears to have been reasonably necessary, it is appropriate to allow a relatively low discount of between 10% and 15% for the possibility of having any of these amounts reduced on taxation. A similar exercise can be done in relation to counsel fees for the trial and the appeal. The daily rate charged by counsel was within the range contemplated by the Master’s guide to counsel fees. Again, a relatively small discount on the amounts claimed, in the vicinity of 10%, would apply in relation to those fees.

There were other substantial counsel fees charged for various matters of advice and for reading and settling documents in the course of preparation for trial. The justification for these fees becomes less certain, although in general terms some reasonable allowance must be made, and the rates charged were also within the range of the Master’s Guide. It would be appropriate therefore to discount that group of fees by slightly more than that applicable to the daily trial and appeal rate because of that uncertainty. In those circumstances a figure of between 20% and 30% would be appropriate.
The invoices put before us indicate that a figure of a little over 75% of the total solicitor’s charges claimed was for work performed by solicitors other than for attendance at the trial and during the appeal. We are satisfied that a good deal of this work would, if properly itemised according to the scale, be recoverable on a party and party basis. However, a much more substantial discount of the amount claimed is appropriate because of the difficulty in relating the hourly rates charged to the scale items allowed under the rules and uncertainty as to the extent to which the cost of some of the work performed would be recoverable on a party and party taxation, whether the work could have been performed by a junior solicitor or by non‑legally qualified people and as to whether the time taken to perform a particular item is fair and reasonable. Because of the greater uncertainty a discount in the vicinity of 50% of this sum is more appropriate.
There are yet other time charges of a relatively small amount included in the AGS invoices for work performed by other than qualified solicitors and for which a time charge has been made. Here the justification becomes even less certain and a higher discount of something over 50% would be appropriate.
Regarding disbursements other than counsel fees, the 30% discount suggested by Mr Stanley is perhaps too generous, given that the largest single item of disbursements would be for the cost of transcript of the hearings in respect of which there could be little argument. It would be appropriate to allow something less than 30% discount on the nature of the disbursements charged in this case, say in the vicinity of 20%.
Opinions may differ as to the discount that should be applied to those various groups of charges. It is possible, nevertheless, to construct an appropriate lump sum figure applying different levels of discount to identifiable figures in the amounts charged according to the likelihood of those figures being disallowed on taxation and according to the degree of uncertainty of the translation from time charging to item costing under the costs schedules. Of necessity, a reasonably broad axe must be taken to the figures concerned in order to ensure that a reasonably conservative figure is fixed because of the incomplete information supplied by the Commonwealth defendants, and to ensure that the plaintiff is not thereby disadvantaged. Applying what are considered to be appropriate levels of discount according to the information supplied in this case, an appropriate figure would appear to be something in the order of $380,000.
That is not far from the figure suggested by Mr Stanley in the course of argument, but it is not arrived at by the same arbitrary method. We think that there is sufficient information upon which the Court can conclude that a figure of $380,000 is logical, fair and reasonable.
Accordingly, we order that, in lieu of costs to be taxed by the Commonwealth defendants, the plaintiff pay their costs of action and of the appeal fixed at $380,000.