Dwa Insurance Pty Ltd v Community Broker Network Pty Ltd (No 3)

[2020] NSWSC 1052

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

DWA Insurance Pty Ltd v Community Broker Network Pty Ltd (No 3) [2020] NSWSC 1052

Hearing dates:

On the papers

Date of orders:

11 August 2020

Decision date:

11 August 2020

Jurisdiction:

Equity

Before:

Robb J

Decision:

See par [92].

Catchwords:

COSTS — Party/Party — Costs orders in interlocutory proceedings — where there was an absence of full and frank disclosure by the plaintiff in an application for ex parte interlocutory orders in the Duty List — where it follows that the costs of and incidental to the injunction application are to be paid on the indemnity basis

COSTS — Party/Party — Bases of quantification — where the Court has no rational basis for apportioning a proper amount of the total costs claimed by the defendant to the applications for which it will be required to bear its own costs — where it is not appropriate for the Court to make a gross sum costs order

COSTS — Party/Party — Timing — Costs payable forthwith — where the subject matter of the plaintiff’s interlocutory application was not discrete, in the relevant sense, from the issues that will be determined at the final hearing — where the delinquent behaviour of the plaintiff has been relevantly addressed by being required to pay costs on the indemnity basis — no obligation to pay the costs forthwith

COSTS — Party/Party — Court’s discretion — where the defendant is not entitled to an order that the plaintiff pay the difference between the legal costs incurred and the amount that is recovered under the costs order

Legislation Cited:

Civil Procedure Act 2005 (NSW)

Uniform Civil Procedure Rules 2005 (NSW)

Cases Cited:

Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd (1981) 146 CLR 249; [1981] HCA 75

European Bank Ltd v Robb Evans of Robb Evans & Associates (2010) 240 CLR 432; [2010] HCA 6

Fiduciary Ltd v Morningstar Research Pty Ltd (2002) 55 NSWLR 1; [2002] NSWSC 432

Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11

Walter Rau Neusser Oel Und Fett AG v Cross Pacific Trading Ltd [2005] FCA 955

Westpoint Finance Pty Ltd v Chocolate Factory Apartments Ltd [2002] NSWCA 287; (2002) 12 BPR 22,969

Texts Cited:

G E Dal Pont, Law of Costs (4th ed, 2018, LexisNexis Butterworths)

Category:

Costs

Parties:

DWA Insurance Pty Ltd (plaintiff)
Community Broker Network Pty Ltd (defendant)

Representation:

Counsel: E Cheeseman SC / M Karam (defendant)

Solicitors: DLA Piper Australia (defendant)

File Number(s):

2020 / 89198

Judgment

Ex parte orders

1. On Friday 20 March 2020, in an after-hours application in the Duty List, I made certain ex parte mandatory and prohibitory interlocutory orders in favour of the plaintiff, DWA Insurance Pty Ltd (DWA), against the defendant, Community Broker Network Pty Ltd (CBN). I subsequently published reasons for granting that relief: DWA Insurance Pty Ltd v Community Broker Network Pty Ltd [2020] NSWSC 280 (the ex parte judgment).

2. At [17] of the ex parte judgment, I observed – prematurely as it has turned out – that the affidavit made by the principal of DWA “appears to be a relatively full disclosure of his email and letter correspondence on this subject”. I also observed, at [48], that “nothing emerged from the evidence that would suggest that the making of the interlocutory orders would put CBN in any jeopardy or cause it any loss”.

Discharge of ex parte orders

3. CBN challenged the continuation of the interlocutory orders and, after an interlocutory hearing inter partes on 7 April 2020, I made an order on 8 April 2020 discharging the interlocutory orders made on 20 March 2020: DWA Insurance Pty Ltd v Community Broker Network Pty Ltd (No 2) [2020] NSWSC 376 (the inter partes judgment).

4. At [37] of the inter partes judgment, I stated my opinion that, on the evidence, the balance of convenience clearly favoured the Court discharging the interlocutory orders made on 20 March 2020.

Absence of full and frank disclosure

5. At [39]-[46] of the inter partes judgment I went on to consider the adequacy of the evidence put before the Court by DWA on the ex parte application. I did not discharge the orders on that ground alone, because the time available during the hearing had not permitted the issue to be considered in depth. However, I concluded that DWA’s evidence on the ex parte application had created a strong impression that CBN may have been acting to take improper advantage of a right of first refusal that it had in respect of the purchase of DWA’s portfolio: see [40]. More significantly, I noted at [41]-[43] that DWA had not put before the Court a spreadsheet that was referred to as an attachment to a letter that was part of the evidence. The spreadsheet contained detailed descriptions by CBN of multiple instances of conduct by representatives of DWA that superficially appeared to involve dishonesty. The nature of the claims was patently material to the application, as the existence of the unanswered claims was capable of putting an entirely different complexion on CBN’s conduct than DWA’s evidence positively suggested.

6. No adequate explanation was given by DWA for its failure to make full and frank disclosure on the ex parte application. The evidence that was withheld ought to have been readily available to DWA. The impression that was created by the evidence that was relied upon by DWA was substantially inconsistent with the conclusions that could be reached based upon the whole of the evidence at the contested hearing.

7. DWA said that the omission of the spreadsheet from the evidence was inadvertent, and caused by the haste in which the application had been prepared. While I accept that DWA’s legal representatives did not intend to mislead the Court, DWA’s assertion of inadvertence was not a satisfactory explanation. DWA must take responsibility for the omission, but more importantly, the suggestions of improper conduct by DWA that were detailed in the spreadsheet ought to have been to the forefront of DWA’s mind during the preparation of its application for interlocutory relief. DWA had not responded to the spreadsheet, and did not even do so before the inter partes hearing. It would not have been sufficient for DWA to have included the spreadsheet in an exhibit. The significance of the spreadsheet ought to have been positively explained to the Court before it made the interlocutory orders.

8. Although I did not discharge the interlocutory orders on the ground of inadequate ex parte disclosure – because, as I have said, there was not sufficient time to deal with the issue fully – I am satisfied that, if full and frank disclosure had been made, I would not have made the interlocutory orders ex parte. The Court was in a particularly difficult position, because it was required to deal with the application after hours and on the papers.

Costs orders sought by CBN

9. The issue of the costs of the interlocutory application remains outstanding. These reasons for judgment deal with that issue.

10. By its submissions dated 14 April 2020, CBN applies for the Court to make the following orders:

1. DWA is to pay CBN’s costs of and incidental to the Injunction Application.

2. The costs order in order 1 herein is to be assessed on an indemnity basis in the gross sum of $415,000 or such other amount as the Court considers appropriate.

3. Alternatively to prayers 1 and 2, DWA is to pay CBN’s costs of and incidental to the Injunction Application on the ordinary basis in such gross sum [as is] considered appropriate by the Court.

4. DWA is ordered to pay CBN’s costs, whether under orders 1 and 2 or order 3, forthwith.

5. To the extent that CBN does not recover its costs of the Injunction Application, it may enforce the undertaking as to damages provided by DWA as a condition of the granting of the injunctions, such damages quantified in the sum of $415,000 (less any sum recovered for costs pursuant to orders 1 to 3 herein).

6. Costs.

   11. I assume that the costs referred to in proposed order 6 are the costs of the argument as to the proper costs order for the Court to make.

Absence of submissions by DWA

12. On 14 April 2020, the Court gave a direction that CBN serve its submissions by 14 April 2020. CBN complied with that direction. DWA was directed to serve its submissions by 21 April 2020. DWA did not do so. On 26 June 2020, the Court extended the time for DWA to serve its submissions to 3 July 2020. That was done by the Court to give DWA a final opportunity to respond to CBN’s submissions. For that purpose the Court made the following note:

The Court…

1. Notes that if [DWA] does not comply with order 1 above the Court will decide the dispute as to the costs order that should be made in chambers without any regard to any further submissions by [DWA].

   13. DWA has not, to the date of preparation of these reasons for judgment, delivered any submissions on the costs issue in response to CBN’s submissions. Consequently, the Court will decide the proper costs orders to be made on the basis of the material that is now before it.

Course of DWA’s interlocutory application

14. It will be necessary to examine the steps taken in these proceedings up to the time when the Court made the order on 8 April 2020 discharging the interlocutory orders made on 20 March 2020.

15. The interlocutory orders were made on the basis that they would take effect until further order. However, by order 7 made on 20 March 2020, the summons was made returnable before the Equity Duty Judge at 10 AM on Wednesday 25 March 2020.

16. It is a well-established principle that, notwithstanding that the initial orders were made until further order, on the return of the summons the following Wednesday, DWA would have the burden of persuading the Court that the circumstances justified the continuation of the orders. Consequently, unless CBN agreed to a short-term extension of the interlocutory orders so as to give it more time to prepare its defence, CBN could have obliged DWA to establish its right to the continuation of the interlocutory orders, when the matter came before the Court on the Wednesday morning after the initial orders were made on the Friday evening.

17. CBN did not, in this case, take the usual course of responding to DWA’s interlocutory application on the return date for the summons. CBN took steps to persuade the Court to stay the interlocutory orders before the return date of the summons.

18. It appears from the transcript of an application before Rein J that took place on 23 March 2020, that, at some time on the weekend following the making of the interlocutory orders, CBN approached Ward CJ in Eq for the purpose of persuading her Honour to list the matter for an urgent hearing on Sunday 22 March 2020 to enable CBN to apply for an order staying the interlocutory orders. I understand that her Honour did not accede to CBN’s request, and left it to CBN to make such application as it may be advised to make before the Equity Duty Judge on Monday 23 March 2020.

19. CBN arranged for the proceedings to be listed before Rein J, who was the Equity Duty Judge on that day.

20. Because of the nature of the after-hours application that had been made by DWA on the Friday, I prepared my initial reasons for judgment, and made those reasons available to the parties and Rein J on the Monday morning. As I had become available to deal with the return of the summons on the Wednesday, I so advised Rein J, and informed his Honour that, if he should see fit, he was invited to make an order that the summons be listed before me for hearing.

21. At the hearing on Monday 23 March 2020, his Honour began by informing the parties that he was not minded to interfere with the business in the Duty List on that day, and that, as the matter could be listed before me on the Wednesday, the most convenient course would be for his Honour not to be required to deal with any application.

22. Both parties were represented by senior and junior counsel on the hearing before Rein J.

23. CBN persisted with an application for a stay of the interlocutory order until the Court could deal with the matter on the return date of the summons. Rein J heard the application, but at the end of the argument he indicated that he was not persuaded to make an order staying the interlocutory orders. His Honour made an order formally refusing CBN’s application for a stay. That the transcript of the application runs to 46 pages demonstrates that it required a substantial interlocutory hearing.

24. Rein J was not required to provide reasons. His Honour was informed on behalf of CBN that it was physically able to comply with the interlocutory orders, but that its primary concern was that to do so would put it in breach of aspects of the Corporations Act 2001 (Cth). Although it is not known precisely why his Honour declined to grant the stay, it appears that he was influenced by the argument put on behalf of DWA that CBN had already been aware of the matters said to have put it in breach of the Corporations Act for some time before it had acted to terminate the relevant Authorised Representative Licences – the implication being that it would not suffer a significant detriment if it acted in accordance with the interlocutory orders and those orders were not stayed for a couple of days: see T 41.47.

25. On 23 March 2020, I made case management orders in accordance with the Guidelines for Equity Duty List Matters to enable the summons to be dealt with in a virtual court hearing on 25 March 2020.

26. Then, on 25 March 2020, Lindsay J made an order in chambers by consent listing the proceedings before the Equity Duty Judge on 3 April 2020.

27. On 2 April 2020, I made an order by consent of the parties adjourning the proceedings from 3 April 2020 to Tuesday 6 April 2020.

28. The hearing in fact took place in the virtual court room by telephone on 7 April 2020. I delivered the inter partes judgment on 8 April 2020.

Evidence of legal costs incurred by CBN

29. It will be convenient to turn to the evidence concerning the costs that CBN claims that it incurred up to the point in time when the Court made the order discharging the interlocutory orders.

30. The amount of those costs is $415,000. CBN relied upon an affidavit of one of its solicitors, Mr Jonathan Ellis, made on 9 April 2020, and a further affidavit of Mr Ellis made on 16 April 2020, to which he exhibited the tax invoices given to CBN concerning the legal costs that it had incurred in the proceedings.

31. Mr Ellis said, in par 13 of his 9 April 2020 affidavit: “In the period between the granting of the Injunctions on 21 March 2020 and their discharge on 8 April 2020, the legal representatives for the Defendant have worked on this matter at near full capacity dealing with the effect of the Injunctions and to prepare for the first return to seek that they be discharged”. Mr Ellis referred in par 7 to the “drastic nature” of the interlocutory orders. CBN apparently believed that the interlocutory orders may have had drastic consequences.

32. At various points in the hearing before him on 23 March 2020, Rein J expressed doubt that CBN would suffer drastic consequences if it acted in compliance with an injunction made by the Court in the period between service of the orders made on 20 March 2020 and the date of the return of the summons on 25 March 2020.

33. The consequences of compliance by CBN with the Court’s interlocutory orders over that short period have not been the subject of any hearing or submissions by the parties. In the circumstances, I must record that I will proceed on the basis that I have not been satisfied that it was necessary for CBN to respond to the making of the interlocutory injunctions in any abnormal manner.

34. I have reviewed the tax invoices of all of the lawyers retained to act for CBN that were included in the exhibit to Mr Ellis’ 16 April 2020 affidavit. It will be appropriate for me to make a number of observations concerning the legal costs incurred by CBN. I should make it clear that those observations are only made in the context of considerations that might be relevant to an assessment of CBN’s claim for payment of those costs by DWA. Parties to litigation are entitled to employ whatever legal resources they wish to use in the promotion of their interests. However, there are many considerations that costs assessors are required to take into account that may have the consequence that the costs recoverable by a successful party against an unsuccessful party are less than the costs incurred. There has been no investigation of the necessity for, or the reasonableness of, the legal costs incurred by CBN. In this context, the observations that I make imply no criticism of the work done or the level of fees rendered by CBN’s lawyers.

35. Although I have analysed CBN’s lawyers’ fees on a daily basis, I see no need in these reasons to disclose in detail the amounts claimed for the work of individual lawyers or their fee rates. That said, I make the following observations:

1. In objective terms, the total amount of the legal costs incurred, at $415,000, is relatively large when measured against the fact that there were only two contested interlocutory applications. The relevance of this observation is that the absolute amount of the legal costs incurred does not permit this Court to readily accept those costs as being reasonable and proportionate. While the costs, or a substantial proportion of them, may in fact be sustainable on a costs assessment, that is not a conclusion that the Court could reach in the absence of a proper assessment process.

2. Multiple lawyers were engaged in the preparation of CBN’s case on nearly every day between 21 March 2020 and 8 April 2020, a period of 18 days. Substantial amounts of costs were incurred on nearly all of those days. Senior counsel was retained for seven full days, and additional periods equivalent in total to about a further day. The principal solicitor and the senior junior who were retained devoted a significant number of hours on most days to the matter. It is not obvious why that level of legal work was necessary to respond to DWA’s application on a contested hearing for the continuation of interlocutory orders.

3. The initial need for urgency, when it was expected that the contested interlocutory hearing would take place on 25 March 2020, may have justified the number of lawyers deployed initially, but that need should have diminished as the time that would elapse before the contested hearing expanded. While the spread of legal work between lawyers of different levels of experience and seniority may, if efficiently managed, be cost-effective, in my experience costs assessors often reduce the amount of costs allowed where it becomes apparent that significant time is required for the lawyers to confer with each other.

4. Mr Ellis’ 6 April 2020 email to my Associate listed five affidavits to be relied upon by DWA and five affidavits to be relied upon by CBN. Acknowledging that the size of affidavits might not give a reliable impression of the time needed to prepare them, I note that CBN relied on the following affidavits at the hearing on 7 April 2020:

1. First affidavit of David McKinnis dated 30 March 2020 (124 paragraphs) with Exhibit DM 1 (322 pages).

2. Second affidavit of David McKinnis dated 3 April 2020 (12 paragraphs) with Exhibit DM 2 (75 pages).

3. First affidavit of Jonathan Ellis dated 23 March 2020 (8 paragraphs) with Exhibit JE 1 (58 pages).

4. Second affidavit of Jonathan Ellis dated 30 March 2020 (29 paragraphs) with Exhibit JE 2 (118 pages).

5. Third affidavit of Jonathan Ellis dated 3 April 2020 (7 paragraphs) with Exhibit JE 3 (179 pages).

6. The references to the number of paragraphs in the affidavits understate the apparent size of the affidavits, as many paragraphs contain numerous subparagraphs.

5. Counsel for CBN provided detailed written submissions to the Court of some 18 pages.

6. In the standard format for lawyers’ tax invoices, CBN’s solicitors and most of its barristers provided brief, general descriptions of the legal work done for particular time intervals. Senior counsel, however, simply recorded her fees on a daily or hourly basis without any description of the work done. Plainly, tax invoices prepared in this format do not provide the information that is generally necessary in order to undertake a proper assessment of a claim for legal costs, even if only at a general level. This factor is made significant in the present case because of the large absolute amount of the costs claimed.

5. While most of fees detailed in CBN’s solicitors’ tax invoices appears to relate to legal work that may be allowed on a costs assessment, there are some items that are doubtful, for example: (a) work relating to the issue of a breach notification to DWA, and the possible suspension of Authorised Representative Licences; (b) communications on behalf of CBN with ASIC; (c) investigations in relation to the proposed sale by DWA of its portfolio to a third party; (d) consideration of an application for expedition of the proceedings; (e) conferences concerning CBN’s post-hearing strategy; (f) work on a potential settlement agreement with DWA; (g) work on a proposed application for security for costs from DWA; and (h) preparation of termination letters for CBN to send to DWA and its employees.

36. It is possible that the large amount of time devoted by most of CBN’s lawyers could be explained by the lawyers investigating the merits of CBN’s case in a depth that would not usually be warranted for the defence of an application for the continuation of interlocutory orders. On such an application, the Court will not usually go further than to decide whether or not the plaintiff has established a serious question to be tried, before the Court considers the balance of convenience. In the present case, CBN was required additionally to address the failure by DWA to give full and frank disclosure on its ex parte application. At this stage, it is a matter for speculation whether the apparently large amount of time devoted by CBN’s lawyers to the matter can be explained on the basis that the lawyers have, as a practical matter, expended considerable effort on preparing the case that CBN would expect to make at the final hearing of the proceedings.

Appropriate costs order for the interlocutory application

37. I will now address the orders sought by CBN and respond to the submissions made on its behalf.

38. The first issue for consideration is the order for costs that the Court should make in respect of DWA’s interlocutory application.

39. Costs are in the discretion of the Court: s 98(1)(a) of the Civil Procedure Act 2005 (NSW) (CPA).

40. The general rule as to the costs order that should be made is laid down in r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) in the following terms:

Subject to this Part, if the court makes any order as to costs, the court is to order that the costs follow the event unless it appears to the court that some other order should be made as to the whole or any part of the costs.

41. The ultimate event in the case of the present application is the discharge on 8 April 2020 of the interlocutory orders made by the Court on 20 March 2020, which had the effect of dismissing DWA’s interlocutory application. It is the general practice of the Court to order the plaintiff to pay the defendant’s costs of a failed application for interlocutory relief. As Young CJ in Eq (as his Honour then was) said in Westpoint Finance Pty Ltd v Chocolate Factory Apartments Ltd [2002] NSWCA 287; (2002) 12 BPR 22,969 (Handley JA and Foster AJA agreeing):

[66] Although costs are always in the discretion of the Court and each case is different, the basic guideline to costs on interlocutory applications for an injunction is that where the plaintiff succeeds costs should be costs in the cause, but an unsuccessful plaintiff should pay the costs.

42. Consequently, CBN is in principle entitled to an order for costs in terms of the order 1 that it seeks.

43. Interlocutory costs orders are sometimes not made where the Court thinks that there is likely to be a substantial overlap between the work done in connection with the interlocutory application and the ultimate trial of the action: see G E Dal Pont, Law of Costs (4th ed, 2018, LexisNexis Butterworths) (Dal Pont) at [14.26]. However, as, on the information available to the Court, there can be no more than a suspicion that the substantial amount of legal costs incurred by CBN may be explained on the basis that much of the work will be utilised at the final hearing, that is an issue that should be left for the assessment process.

44. However, in the present case the Court must have regard to the fact that CBN took the unusual course of attempting to have the matter relisted on Sunday 22 March 2020, and having the matter relisted on Monday 23 March 2020, before the judges who were on duty on those days. CBN declined to wait another couple of days until Wednesday 25 March 2020. When duty judges decide the time at which it is appropriate to order that a summons seeking interlocutory relief be returnable for hearing, they expect that the Court will not be required to deal further with the matter until the return date.

45. While there is nothing improper in a party served with an interlocutory injunction obtained against it ex parte moving the Court before the return date of the summons for an order discharging or staying the interlocutory injunction, the fact in the present case is that the first application to relist the matter was rejected by Ward CJ in Eq, and the second application was dismissed by Rein J. Judging by the length of the transcript, the proceedings before Rein J were at least as substantial as the contested interlocutory hearing before me on 7 April 2020.

46. DWA has not made any application to the Court for an order that CBN pay its costs of CBN’s applications to the duty judges on 22 and 23 March 2020. It may be that the Court would not have looked at such an application favourably, given that it has ultimately found that DWA succeeded in obtaining the interlocutory orders without the full and frank disclosure required when an ex parte application is made. However, as CBN’s applications were exceptional, and failed, in my view there is no justification for the Court to order DWA to pay CBN’s costs of those applications.

47. CBN is entitled to an order that DWA pay to it its costs of the proceedings between 20 March 2020 and 8 April 2020, insofar as those costs reasonably related to DWA’s application for interlocutory relief, except for the costs incurred by CBN in its application to Ward CJ in Eq on 22 March 2020 and its application to Rein J on 23 March 2020, in respect of which each party should pay its own costs.

Appropriate basis for assessment of costs

48. The next question is whether DWA should be ordered to pay CBN’s costs on the indemnity or the ordinary basis: see CPA s 98(1)(c).

49. The Court may make an order that costs be paid on the indemnity basis where there is some delinquency on the part of the unsuccessful party that justifies an award of indemnity costs. The purpose is to more fully or adequately compensate the successful party: Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 at [44]. The delinquency or unreasonable conduct that may justify an award of costs on the indemnity basis must arise out of the manner in which the unsuccessful party has conducted the litigation, rather than out of the conduct that is the subject of the litigation: see the discussion in Dal Pont at [16.46].

50. The obligation of a plaintiff seeking ex parte relief from the Court to make full and frank disclosure is well established. It is sufficient to set out the following statement of principle by Allsop J (as his Honour then was) in Walter Rau Neusser Oel Und Fett AG v Cross Pacific Trading Ltd [2005] FCA 955:

[38] In an ex parte hearing, it is the obligation of the party seeking orders, through its representatives, to take the place of the absent party to the extent of bringing forward all the material facts which that party would have brought forward in defence of the application: Thomas A Edison Ltd v Bullock (1912) 15 CLR 678 at 681–82 per Isaacs J. That does not mean stating matters obliquely, including documents in voluminous exhibits, and merely not mis-stating the position. It means squarely putting the other side’s case, if there is one, by coherently expressing the known facts in a way such that the Court can understand, in the urgent context in which the application is brought forward, what might be said against the making of the orders. It is not for the Court to search out, organise and bring together what can be said on the respondents’ behalf. That is the responsibility of the applicant, through its representatives.

51. I do not accept that the non-disclosure by DWA can be explained away as an inadvertent consequence of haste. I have explained above my reasons for finding that DWA in the present case failed to comply with its obligation to make full and frank disclosure to the Court on the ex parte application it made on 20 March 2020.

52. If DWA had sufficiently disclosed the real position to the Court, it would not have made orders on an ex parte basis, but rather would have made orders for short service, so that DWA’s summons would have been made returnable early in the week commencing Monday 23 March 2020. The Court cannot know, in the circumstances, what difference this course of events would have made to the manner in which CBN responded to the application. CBN’s actual response to service of the ex parte injunctions upon it establishes that CBN took the view that compliance by it with the injunctions was likely to be detrimental and to put it in breach of the Corporations Act. CBN believed that compliance with the injunctions would subject it to considerable regulatory and reputational risk. The reality of CBN’s fears is not the point. The point is that the making of the interlocutory orders in fact caused CBN to respond in a manner that, on the probabilities, caused it to incur a higher level of legal fees than would otherwise have been the case.

53. As DWA’s delinquent conduct occurred in its conduct of the litigation and materially contributed to the Court granting ex parte interlocutory injunctions that it would not otherwise have granted, and as that conduct was likely to have increased the costs incurred by CBN in moving to have the interlocutory injunctions discharged, this is an appropriate case for the Court to order that DWA pay CBN’s costs of the interlocutory application on the indemnity basis.

54. The consequence will not necessarily be that DWA will be obliged to pay all of the costs incurred by CBN. As is relevantly provided in UCPR r 42.5:

If the court determines that costs are to be paid on an indemnity basis—

…

(b)   in any other case, all costs (other than those that appear to have been unreasonably incurred or appear to be of an unreasonable amount) are to be allowed.

55. CBN is only entitled to the payment of its costs where those costs appear to have been reasonably incurred and are reasonable in amount. As I have explained above, the quantum of CBN’s total costs is relatively large and unexplained, and it is possible that some of the work done was not strictly necessary for CBN’s defence of DWA’s application for the continuation of the interlocutory orders. Some of the work done may be more relevant to the preparation for the final hearing. Consequently, this is a case where there is a real need to ensure that, although DWA will be required to indemnify CBN for its costs, that indemnity is limited by the requirements of UCPR r 42.5(b).

Application for costs in a gross sum

56. The Court is empowered by s 98(4)(c) of the CPA, at any time before costs are referred for assessment, to make an order that the party to whom costs are to be paid is to be entitled to a specified gross sum instead of assessed costs.

57. CBN has applied to the Court for an order that DWA pay its costs of the interlocutory application in the gross sum of $415,000, or such other amount as the Court considers appropriate.

58. In Hamod v State of New South Wales [2011] NSWCA 375, Beazley JA (as her Excellency then was), with the agreement of Giles and Whealy JJA, laid down the following principles concerning the making of gross sum costs orders:

[813] I have already set out the relevant provisions of s 98. The discretion thereby conferred upon the court is not confined and may be exercised whenever the circumstances warrant its exercise, having regard to the scope and purpose of the provision: Harrison v Schipp [2002] NSWCA 213; 54 NSWLR 738 per Giles JA at [21]–[22]. In Harrison v Schipp, Giles JA considered that the discretion in s 98(4) may be exercised where the assessment of costs would be protracted and expensive and, in particular, if it appeared that a party obliged to pay the costs would not be able to meet a liability of the order likely to result from the assessment. However, his Honour stated, at [22]:

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.

[814] See also Wentworth v Wentworth (Court of Appeal, 21 February 1996, unreported). The courts have typically applied a discount in assessing costs on a gross sum basis: Ritchie’s Uniform Civil Procedure NSW, LexisNexis, Sydney, 2005 to date, “Civil Procedure Act”, at [s 98.65]; Charlick Trading Pty Ltd v Australian National Railways Commission [2001] FCA 629; Sony Entertainment (Aust) Ltd v Smith (2005) 215 ALR 788; Idoport Pty Ltd v National Australia Bank Ltd; Lorenzato v Lorenzato (No 2) [2011] NSWSC 790 per Black J.

[815] In Beach Petroleum NL v Johnson (No 2) (1995) 57 FCR 119; 135 ALR 160, von Doussa J noted that the specified gross sum costs procedure was particularly useful in complex cases, that the power must be exercised judicially and only after giving the parties an adequate opportunity to make submissions, and that before exercising the power the court should be confident that the approach taken to estimate costs is fair, logical and reasonable.

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

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

[818] The power may also be exercised where a party’s conduct has unnecessarily contributed to the costs of the proceedings, especially where the costs incurred have been disproportionate to the result of the proceedings: Leary v Leary [1987] 1 WLR 72; [1987] 1 All ER 261; Sony Entertainment (Aust) Ltd v Smith; Microsoft v Jiang (2003) 58 IPR 445; [2003] FCA 101; Ritchie’s Uniform Civil Procedure NSW at [s 98.60]).

[819] The assessment of any lump sum to be awarded must represent a review of the successful party’s costs by reference to the pleadings and complexity of the issues raised on the pleadings; the interlocutory processes; the preparation for final hearing and the final hearing: Smoothpool v Pickering [2001] SASC 131. In the exercise of its discretion the court is not required to undertake a detailed examination of the kind that would be appropriate to taxation or formal costs assessment: Harrison v Schipp at 743; Hadid v Lenfest Communications Inc at [35]; Auspine Ltd v Australian Newsprint Mills Ltd (1999) 93 FCR 1 at 5; [1999] FCA 673.

[820] The costs ordered should be based on an informed assessment of the actual costs having regard to the information before the court (for example, by relying on costs estimates or bills): Beach Petroleum NL v Johnson (No 2); Leary v Leary; Harrison v Schipp at 743 ; Sparnon v Apand Pty Ltd (FCA, 4 March 1998, unreported). The approach taken to estimate the costs to be ordered must be logical, fair and reasonable: Beach Petroleum NL v Johnson at 164–165; Hadid v Lenfest Communications Inc at [27]; Harrison v Schipp at 743. This may involve an impressionistic discount of the costs actually incurred or estimated, in order to take into account the contingencies that would be relevant in any formal costs assessment: Leary v Leary at WLR 76 per Purchas LJ; Beach Petroleum NL v Johnson (No 2) at 123; Auspine Ltd v Australian Newsprint Mills Ltd at 164–165.

59. For the reasons that follow, I have concluded that, on the material that is now before the Court it is not appropriate for the Court to make a gross sum costs order in favour of CBN.

60. There is a particular difficulty at the outset, which arises from my decision that each party should pay its own costs of CBN’s applications to the duty judges on 22 and 23 March 2020. The Court has no rational basis for apportioning a proper amount of the total costs claimed by CBN to the applications for which it will be required to bear its own costs.

61. I am also concerned that there is no objective basis for me to resolve my suspicion that the amount of legal work done was substantially more than was reasonably required for CBN’s response to DWA’s interlocutory application, and has yielded both knowledge and evidence that will be deployed by CBN at a final hearing.

62. Furthermore, as I have explained above, I take the view that the total quantum of CBN’s costs claim, at $415,000, cannot readily be related to the work necessary to be done in preparation for the hearing that took place on 7 April 2020. The reasonableness of that claim for costs is an outstanding question. If I were to assess an appropriate amount as the gross sum for the costs to be payable to CBN, it would be necessary for me to start with a consideration of the evidence needed to be responded to, the evidence prepared on behalf of CBN, the hearings at which CBN was required to be represented, and to make a judgment about the amount of legal work necessary to perform that work. I would then have regard to the fee rates of the lawyers who have been retained to carry out the legal work for CBN, and estimate an appropriate lump sum. That exercise would likely yield an amount for costs substantially less than $415,000. I am not satisfied that the evidence available would allow me to perform that exercise in a manner that was logical, fair and reasonable, rather than somewhat arbitrary.

63. Even though authority would entitle me to determine the gross sum in a manner that involved an impressionistic discount, it is likely that the discount that I would apply would be so substantial as to call into question both the fairness and the rationality of the process.

64. Consequently, I am not satisfied that the Court could make a gross sum costs order fairly between the parties.

65. There is no evidence that would support a conclusion, at this stage, that the assessment of the costs in the conventional manner would be protracted and expensive. The interlocutory application could not be described as being a lengthy or complex case.

66. While it follows from some of the observations that I have made above that there may be conceptual and practical problems in apportioning CBN’s costs, given the contents of CBN’s lawyers’ tax invoices that I have discussed above, some sort of conventional assessment process will be necessary to enable the assessment to be performed in a rational way.

59. It has come to the Court’s attention, from the evidence relied upon by CBN on this application, that the contract for the sale of DWA’s portfolio for the sum of $3.6 million was to occur on or about 22 April 2020. Mr Ellis’ 9 April 2020 affidavit appears to have been prepared for the purpose of supporting an application by CBN for the provision of security for costs, and possibly also a freezing order against DWA. At present, the significance of this evidence is that it does not appear that DWA will be unable to pay the costs to which CBN will become entitled as a result of the assessment of the costs order.

60. I have noticed from the Court’s record of proceedings in respect of hearings that have occurred after the hearing before me on 7 April 2020, particularly a hearing before a Registrar on 15 June 2020, that CBN is pursuing an application against DWA for the provision of security for its costs. There is a record that the director of DWA is to advise the Court if it is intended that DWA will prosecute the proceedings. The question of whether DWA may be represented by its director is also outstanding. If necessary, CBN’s notice of motion will be listed after these reasons for judgment have been published and considered by the parties.

61. I mention these matters because it is possible that the proceedings as a whole may take a course that justifies the renewal by CBN of its application for its costs to be determined on a gross sum basis. My decision to decline to determine CBN’s costs on that basis at this stage will be without prejudice to CBN’s entitlement to make a further such application before the costs order in its favour is referred for assessment. Any such application would have to be carefully case managed, and supported by evidence that dealt with the factors that have caused me to decline to make a gross sum costs order at present.

Time for payment of CBN’s costs

70. CBN has applied for an order that DWA pay the costs of the interlocutory application, on whatever basis they are ordered to be paid, forthwith.

71. The time for the payment of interlocutory costs orders is dealt with in UCPR r 42.7 in the following terms:

1. Unless the court orders otherwise, the costs of any application or other step in any proceedings, including—

(a)   costs that are reserved, and

(b)   costs in respect of any such application or step in respect of which no order as to costs is made,

are to be paid and otherwise dealt with in the same way as the general costs of the proceedings.

1. Unless the court orders otherwise, costs referred to in sub-rule (1) do not become payable until the conclusion of the proceedings.

   72. The effect of this rule is that the costs order to be made in favour of CBN will not be payable by DWA until after the general costs of the proceedings are determined, and become payable upon their completion, unless the Court makes an order otherwise.

   73. CBN submitted that the Court should order otherwise in the circumstances of this case, for the following reasons stated by Barrett J (as his Honour then was) in Fiduciary Ltd v Morningstar Research Pty Ltd (2002) 55 NSWLR 1; [2002] NSWSC 432, at [11]-[13]:

[11] This identifies the first recognisable category of case, namely, where the application or aspect in respect of which the particular costs order is made before conclusion of the proceedings represents the determination of a separately identifiable matter or may be viewed as the completion of a discrete aspect. Examples of this may be found in Charlie Brown Pty Ltd v Green (unreported, NSWSC, McLelland CJ in Eq, 3 July 1995) and Bagley v Pinebelt Pty Ltd [2000] NSWSC 830.

[12] A second factor which may incline the court to order that costs be payable forthwith is some unreasonable conduct on the part of the party against whom costs have been ordered. That was a factor taken into account by Simpson J in Gattellari v Meagher [1999] NSWSC 1279, although, in the end, her Honour did not think that the particular conduct warranted such an order.

[13] A third factor is, as it was put by Giles J in Doran Constructions Pty Ltd v University of Newcastle (unreported, NSWSC, 16 December 1994), that "there is much to come in the proceedings" and "one can see a fairly long time before the proceedings are disposed of". In Horrobin (above), the decision of Priestley JA to order that costs be payable forthwith was influenced to some extent by the fact that the controversy between the parties would run for at least a further year. In Allstate Life Insurance Co v Australia and New Zealand Banking Group Ltd (unreported, FCA, 18 August 1995), Lindgren J said that it may be appropriate for greater use to be made of the analogous provision in the Federal Court Rules, "particularly in cases such as this one where the final determination of the proceedings is so far away".

74. The first reason for the Court to order otherwise requires that the Court be satisfied that the issue raised by DWA’s interlocutory application was a discrete or self-contained issue. CBN appears to submit that the application was discrete because the discharge of the interlocutory orders brought the injunction phase of the proceedings to an end. If that submission were valid, the Court would readily otherwise order in all cases where an order for costs was made at the completion of an interlocutory application. Relevantly, discreteness does not depend upon the functional stage of the proceedings, but on whether the Court’s orders have finally determined the subject of the application, so that it will not figure in the balance of the proceedings.

75. It is necessary to analyse the prayers for relief in DWA’s summons to determine whether the issues raised by the interlocutory application are discrete and separate from the issues that will be determined by the balance of the proceedings. Relevantly, DWA sought, by prayer 5, the reinstatement of DWA’s Corporate Authorised Representative License Number and the Authorised Representative License Number of DWA’s employees, together with the reinstatement of certain electronic facilities necessary to enable DWA to carry on its business. DWA also sought an order that CBN be restrained from acting on the Notice of Termination issued by it dated 18 March 2020.

76. Included in DWA’s prayers for final relief at prayer 10 is a declaration that the Notice of Termination dated 18 March 2020 is invalid, unlawful and of no effect. Most of DWA’s other prayers for final relief are predicated on the basis that DWA will establish that CBN’s purported termination of relevant legal arrangements with DWA was unlawful.

77. I am not satisfied that the subject matter of DWA’s interlocutory application was discrete, in the relevant sense, from the issues that will be determined at the final hearing. In common with the majority of applications for interlocutory relief, the application in this case sought the preservation of the status quo before the service of the Notice of Termination, pending the final determination of whether CBN was entitled to terminate the relevant legal arrangements with DWA.

78. CBN then submitted that the costs of the interlocutory application have been significant, and if the proceeding runs its course, the costs will not be recoverable until the conclusion of the proceedings. CBN submitted that this result would be unjust in the circumstances.

79. It is quite true that CBN’s costs have been significant. As I have explained above, I do not see how those costs can readily be related to the legal work that ought to have been required to respond adequately to DWA’s interlocutory application. I have not ruled out that CBN will be able to justify at least a substantial proportion of those costs. In the circumstances it will not be appropriate for the Court to order that CBN’s costs be paid forthwith, as it is not yet clear that the costs payable will be of a magnitude that would warrant an order to that effect.

80. Finally, CBN submitted that the delinquent behaviour of DWA, in not satisfying its obligation to make full and frank disclosure to the Court at the time of its ex parte application, justifies an order that DWA pay its costs forthwith.

81. The material consequence of this delinquent conduct on DWA’s part was that it will be ordered to pay the relevant part of CBN’s costs of the interlocutory application on the indemnity basis. That exhausts the consequences, as I am not satisfied that it would be warranted for the Court to impose the additional obligation to pay the costs forthwith.

82. I decline CBN’s application for an order that the costs payable to it by DWA should be paid forthwith.

Enforcement of DWA’s undertaking as to damages

83. CBN seeks an order that, to the extent that it does not recover its costs of the injunction application, it may enforce the undertaking as to damages provided by DWA as a condition of the granting of the injunctions. CBN submits that the damages should be quantified in the sum of $415,000, less any sum recovered by CBN by means of the enforcement of the costs order to be made in its favour.

84. This claim is made on the premise that the legal costs actually incurred by a defendant in successfully obtaining an order for the discharge of an interlocutory injunction, made against the defendant on the security of the usual undertaking as to damages given by the plaintiff to the Court, can properly be categorised as damages for the purpose of the enforcement of the usual undertaking. CBN’s case is that the quantum of the damages that it will suffer is the difference between the total actual legal costs that it incurred and the costs that it successfully recovers from the enforcement of the costs order made in its favour.

85. In European Bank Ltd v Robb Evans of Robb Evans & Associates (2010) 240 CLR 432; [2010] HCA 6, French CJ and Gummow, Hayne, Heydon and Kiefel JJ said, of the nature and effect of the usual undertaking as to damages to the Court:

14 Reliance upon the rule in Hadley v Baxendale in an application such as that before Gzell J must be only by way of analogy. The point made by Farwell LJ in Re Hailstone; Hopkinson v Carter and repeated by Cussen J in Victorian Onion & Potato Growers' Association Ltd v Finnigan [No 2] and by Neill LJ in Cheltenham and Gloucester Building Society v Ricketts is important here. It is that the undertaking as to damages is given to the court, for enforcement by the court; it is not a contract between parties or some other cause of action upon which one party can sue the other. It is worth repeating the obvious proposition that such an undertaking is not lightly to be given.

15 The undertaking as to damages and its origins in equity practice of the nineteenth century, if not earlier, were explained by Aickin J in Air Express and by Gleeson CJ, Gummow, Kirby, Hayne and Crennan JJ in Mansfield v Director of Public Prosecutions (WA). The authorities discussed in Mansfield included Russell v Farley, where Bradley J had explained the requirement of the undertaking as a response to the anxiety entertained by the court that otherwise its interlocutory order might lead to damage for which there could be no redress except by an order for costs.

16 In Air Express, Mason J said that there was little to be gained from an examination of the authorities dealing with causation of damage in contract, tort and other situations; the Court was better advised to look to the purpose which the undertaking as to damages is to serve and to identify the causal connection or standard of causal connection which is most appropriate to that purpose.

17 A party seeking an equitable remedy is required to “do equity” and this is the origin of the requirement that the party giving an undertaking as to damages submit to such order for payment of compensation as the court may consider to be just. Given its origin and application to varied circumstances in particular cases, the process of assessment of compensation cannot be constrained by a rigid formulation.

18 These considerations, bearing upon the interests of justice in the particular circumstances of the litigation, support the following statement by Aickin J in Air Express, made with respect to interlocutory injunctions, but applicable to the interlocutory order made by the Court of Appeal against European Bank. His Honour said:

“In a proceeding of an equitable nature it is generally proper to adopt a view which is just and equitable, or fair and reasonable, in all the circumstances rather than to apply a rigid rule. However the view that the damages should be those which flow directly from the injunction and which could have been foreseen when the injunction was granted, is one which will be just and equitable in the circumstances of most cases and certainly in the present case.”

The phrase “could have been foreseen” should be noted.

86. A clear statement of the nature of the damages to which the undertaking as to damages extends was given by Gibbs J (as his Honour then was) in Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd (1981) 146 CLR 249 at 312, 313; [1981] HCA 75 (footnotes omitted):

In a number of authorities the court has distinguished between loss which was caused by the injunction and loss which arose from the litigation: see Bingley v. Marshall; Gault v. Murray; Douglass v. Bullen and Newman Bros. Ltd. v. Allum, S.O.S. Motors Ltd. (In liq.) [No. 2]. There is no reason to doubt that it is correct in principle to draw such a distinction if the facts warrant it. If the pendency of the litigation, rather than the making of the order, was the cause of the plaintiff's loss, the terms of the undertaking have no application, since the plaintiff has not sustained loss by reason of the order. Moreover, except in certain cases analogous to malicious prosecution, a defendant is not entitled to recover damages for loss resulting from legal proceedings brought against him — the only liability of the unsuccessful plaintiff is to pay costs. The court should no doubt scrutinize with care an assertion by a plaintiff that loss which has been suffered by a defendant has resulted from the litigation rather than from the making of the interlocutory order, since a plaintiff should not be allowed to evade payment of the price which he has agreed to pay for the grant of the injunction. In the end however the question becomes one of fact: did the making of the order cause the loss? The onus of proof must, in accordance with general principles, lie on the defendant who asserts that he sustained damage by reason of the order.

87. The question therefore is whether the damages claimed by CBN were caused by CBN’s compliance with the interlocutory orders, as a result of the reinstatement of the Authorised Representative Licenses and DWA’s access to the various electronic facilities, or by being restrained from acting on or giving effect to the Notice of Termination dated 18 March 2020.

88. In its written submissions at par 33(b)(ii), CBN accepts that the question is whether the loss flowed from the interlocutory order (as opposed to the litigation generally). However, CBN further submitted:

1. … The loss clearly flowed from the injunction as opposed to the litigation, because no steps have been taken in the substantive proceedings as yet. This is not a case where, for example, an injunction is discharged at the same time as final judgment is given in a proceeding after a lengthy period of litigation.

   89. I do not accept the distinction made by CBN in this submission. CBN appears to have accepted that, if the Court had discharged the interlocutory injunctions following a final hearing, on the basis that DWA had not, for instance, established that the Notice of Termination was void, the usual undertaking as to damages to the Court would not cover the difference between the total costs incurred by CBN and the amount recoverable on an assessment of a costs order made in its favour, because then the shortfall in recoverable costs would have flowed from the litigation. I cannot see the difference between that situation and the case where the interlocutory orders are discharged by the Court on the return of the summons at an initial inter partes hearing. The loss in either case arises from the litigation. That is inherent in the very nature of legal costs. Legal costs incurred by a defendant in securing the discharge of an interlocutory injunction are not caused by the plaintiff’s compliance with the injunction, whatever the stage of the proceedings at which the injunction is discharged.

   90. Consequently, CBN is not entitled to an order that DWA pay to it the difference between the legal costs incurred by CBN and the amount that is recovered under the costs order that will be made in favour of CBN below.

Costs of the costs application

91. As CBN has succeeded on only some aspects of the orders for costs that it has sought, I have concluded, upon a broad consideration of the issues, that it will be fair to order DWA to pay half of CBN’s costs of the costs application on the ordinary basis.

Orders

92. The Court:

1. Orders, subject to order (2), the plaintiff to pay the defendant’s costs of the plaintiff’s interlocutory application in prayers 4 and 5 of the summons.

2. Notes that the costs payable under order (1) do not include the plaintiff’s costs of the applications made to Ward CJ in Eq and Rein J, on or about 22 and 23 March 2020 respectively, with the intention that each party is to bear its own costs of those applications.

3. Orders that the costs payable by the plaintiff to the defendant in accordance with orders (1) and (2) are to be paid on the indemnity basis.

4. Notes that the calculation of indemnity costs as ordered by order (3) must be strictly on the basis provided for in Uniform Civil Procedure Rules 2005 (NSW) r 42.5.

5. Dismisses the defendant’s claim that the costs payable to it by the plaintiff be determined on a gross sum basis, without prejudice to the right of the defendant to make a further claim for the determination of its costs as a gross sum, if any changes in circumstances warrant that application.

6. Dismisses the defendant’s claim for an order that the plaintiff pay the defendant’s costs forthwith.

7. Dismisses the defendant’s claim to enforce the usual undertaking as to damages given by the plaintiff to the Court in respect of any shortfall in the recovery of the legal costs actually incurred by the defendant after the assessment of the costs orders made in favour of the defendant and the enforcement of those costs orders.

8. Orders the plaintiff to pay half of the defendant’s costs of the costs application on the ordinary basis.

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Amendments

18 August 2020 - correction to parties in par 92(3)

Decision last updated: 18 August 2020