Garden Estate Hackham Pty Ltd v Angas Securities Limited
[2022] SASC 14
•17 February 2022
SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
GARDEN ESTATE HACKHAM PTY LTD v ANGAS SECURITIES LIMITED
[2022] SASC 14
Judgment of the Honourable Justice Blue
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - SECURITY FOR COSTS
CORPORATIONS - LEGAL CAPACITY AND RELATIONS WITH OUTSIDERS - EXTERNAL LITIGATION PROCEDURE - COSTS - SECURITY FOR COSTS - JURISDICTION - COMPANY AS PLAINTIFF - GENERALLY
In this action, previous orders have been made for the payment into court of monies as security for costs. The respondents seek that an additional amount be provided as security.
The orders have been sought and made on the accepted basis that the action brought, on the instructions of the applicants’ director where receivers and managers have been appointed, should only be allowed to proceed if adequate security is provided to indemnify the applicants against, not only their own legal costs, but also their potential exposure to an adverse costs order being made in favour of the respondents.
In August 2018 at a directions hearing it was agreed that security of $450,000 would be provided by the applicants, in addition to $30,000 already paid into court. In September 2018 it was ordered that the applicants pay into court $250,000 by 28 September 2018 in respect of their potential liability until a mediation occurs or otherwise would have occurred, and $200,000 within 7 days of a mediation occurring or otherwise would have occurred in respect of their potential liability thereafter until the end of the first day of trial.
In June 2019 it was ordered that a further $50,000 be paid into court and in April 2020 it was ordered that a further $150,000 be paid into court by the applicants. This was essentially because less progress had been made in the action than was previously anticipated and the applicants had a substantial responsibility for the action not having proceeded expeditiously and for the additional costs that had been consequently incurred.
The action has now been listed for trial to commence on 2 May 2022 and an order has been made for a mediation by 19 February 2022.
Held (dismissing the application):
1The applicants have not demonstrated that the security previously ordered is inadequate for the purpose for which it was ordered (at [63]).
2 Application dismissed (at [64]).
Corporations Act 2001 (Cth) s 180, s 181 and s 1335; Uniform Civil Rules 2020 (SA) r 115, referred to.
Deangrove Pty Ltd v Commonwealth Bank of Australia (2001) 108 FCR 77, considered.
GARDEN ESTATE HACKHAM PTY LTD v ANGAS SECURITIES LIMITED
[2022] SASC 14
BLUE J: In this action the applicants, Garden Estate Hackham Pty Ltd and Garden Estate Christies Pty Ltd, claim against their former financier, Angas Securities Ltd (Angas), damages for breach of contract, misleading and unconscionable conduct, and a declaration that the purported appointment by Angas of Stephen Duncan and Christopher Powell (the Receivers) as receivers and managers was invalid. They claim against the Receivers the same declaration, an additional declaration that the Receivers contravened sections 180 and 181 of the Corporations Act 2001 (Cth), damages for breach of duty and an account. The respondents, Angas and the Receivers, are jointly represented in the action.
Previous orders have been made for the payment into court of monies as security in respect of the applicants’ prospective liability to pay the respondents’ costs under an adverse costs order in respect of such costs up to the first day of trial. The respondents seek an order that an additional amount be provided as security.
The previous orders have been made, and the order now sought is sought, not on the basis of an order for security for costs under section 1335 of the Corporations Act 2001 (Cth) or rule 115 of the Uniform Civil Rules 2020 (SA). Rather, they are on the basis that the action brought, on the instructions of the applicants’ director where receivers and managers have been appointed to their assets, should only be allowed to proceed (at least against the Receivers) if adequate security is provided to indemnify the applicants against not only their own legal costs but also their exposure to an adverse costs order being made in favour of the respondents.[1]
[1] See Deangrove Pty Ltd v Commonwealth Bank of Australia [2001] FCA 173; (2001) 108 FCR 77 at [40] per Sackville J.
Background
This action was instituted on 21 September 2016 but was not served until 19 September 2017. The action was instituted on the instructions of Jennifer Michalakas, the sole director of the applicant companies, exercising the residual power of a director of a company over the assets of which receivers and managers have been appointed.
Before the institution of this action, there were disputes between Ms Michalakas and James Michalakas (the Michalakas) and Angas in relation to funding by Angas to the applicants. Angas was represented by Charlton Rowley in relation to issues involving the applicants before service of the initiating documents in this action in September 2017.
On 29 September 2017 the respondents filed an application seeking striking out of the statement of claim and dismissal of the action. One ground for the application for dismissal was that Ms Michalakas lacked power to cause the institution of the action given that the applicant companies were in receivership. The application was ultimately listed for argument before a Judge on 25 January 2018.
On 30 November 2017 Ms Michalakas swore an affidavit in which she said that she had secured funding from family members to indemnify the applicants to the extent ordered by the Court, and that family members had assured her that they would give undertakings to the Court and the applicants as required.
On 16 January 2018 Luke Rowley, the principal solicitor for the respondents, sent a letter to the solicitors for the applicants referring to the indemnity to which Ms Michalakas had referred in her affidavit. He said that, to be effective, the indemnity would need to cover both the applicants’ own legal fees, as well as an indemnity in respect of adverse costs orders made against the applicants in favour of the respondents. He estimated the applicants’ costs of prosecuting the action to the conclusion of trial at $908,770 inclusive of GST ($835,670 exclusive of GST).[2] This was based on an estimate of a three week trial and an assumption that he said was based on his general litigation experience that pre-trial costs would be twice the amount of trial costs.
[2] Dollar figures rounded to the nearest whole dollar unless otherwise shown.
In this letter, Mr Rowley said that he estimated that the quantum of an adverse costs order made against the applicants in favour of the respondents would be approximately 66 per cent of the applicant’s own legal costs, assuming costs would be ordered to be paid on the Supreme Court scale. On this basis, he estimated the quantum of an adverse costs order at $599,788 inclusive of GST ($551,542 exclusive of GST). He requested evidence of the Michalakas’ ability to satisfy the indemnity for $1,508,558 (being the total of the estimated costs of the applicants and respondents inclusive of GST).
On 25 January 2018 the respondents’ strike out application was argued before a Judge.[3] The respondents contended that the statement of claim was defective and the applicants accepted that there was a need to amend it. The respondents also contended that Ms Michalakas ought not to be allowed to cause the continued prosecution of the action by the applicant companies unless an effective indemnity was provided to the companies in respect of their own legal costs and their exposure to the legal costs of the respondents in the event of an adverse costs order. They relied in this respect on Deangrove Pty Ltd v Commonwealth Bank of Australia.[4] The applicants sought time to make enquiries about litigation funding with a view to providing such an indemnity.
[3] The respondents did not press the dismissal application at that stage due to recent developments.
[4] (2001) 108 FCR 77.
The matter was adjourned to 4 May 2018 for the purpose of the applicants bringing forward a proposed amended statement of claim and making inquiries about litigation funding. An order was made striking out the statement of claim because it required amendment and there was no effective indemnity in place in respect of legal costs. An order was made that Ms Michalakas provide security in the amount of $20,000 for any adverse costs orders that might be made against the applicants. That security was provided by a payment into court.
On 12 February 2018 the applicants entered into a litigation funding agreement with a litigation funder, F. There were subsequent communications between the solicitors for the applicants and the respondents concerning the question whether this agreement provided adequate indemnity to the applicants in respect of their own costs or adverse costs orders.
On 4 May 2018 an order was made that Ms Michalakas provide additional security in the amount of $10,000 for any adverse costs orders that might be made against the applicants. That security was provided by a payment into court. The hearing listed for 4 May 2018 was vacated and the matter was adjourned. Ultimately, it was adjourned to 10 August 2018.
On 22 July 2018 Mr Rowley swore his fifth affidavit in which, amongst other things, he exhibited a copy of his letter dated 16 January 2018 and said that the estimate of respondents’ legal fees defending the action contained therein was a realistic estimate based on his experience. He further said that the original estimate should be increased by $50,000 because that was the amount that he estimated had been expended since the respondents first participated in the action.
On 8 August 2018 Stewart Levitt, the solicitor with oversight of the matter for the applicants, wrote a letter to Mr Rowley in response to Mr Rowley’s 22 July 2018 affidavit. He took issue with Mr Rowley’s estimate of the applicants’ legal costs in his letter dated 16 January 2018 on various grounds, including the length of trial and that GST ought not to be included. He made his own estimate of the applicants’ legal costs of the action to the end of a two week trial at $671,890 (exclusive of GST). In relation to the applicants’ own legal costs, he undertook on behalf of his own firm and F that they would not seek recourse against the applicants for legal costs beyond any amount recovered by the applicants from the respondents.
In relation to an adverse costs order against the applicants in favour of the respondents, Mr Levitt estimated the quantum of those costs, using the ratio of 66 per cent adopted by Mr Rowley, at $443,447 (exclusive of GST). Mr Levitt estimated the amount of such costs up to the stage of a mediation at $180,000 (exclusive of GST).
On 8 August 2018 Mr Levitt swore an affidavit exhibiting a copy of his letter.
On 10 August 2018 the matter came before me on a directions hearing. Counsel for both parties informed me that the issue in relation to the applicants’ own legal costs had been resolved in principle (this was subsequently formally resolved by the filing of an undertaking on 31 August 2018). I was informed that the only remaining issues in relation to indemnity were the quantum of security to be provided in respect of an adverse costs order, the form of that security and the timing of that security. In relation to the quantum of security, I suggested (in the nature of conciliation) that the parties agree on a quantum of $450,000 being a rounding of the figure of $443,447 referred to by Mr Levitt in his letter. This was agreed by both parties. It was left to the parties to formalise the provision of security and return to the Court if some aspect could not be agreed.
On 20 September 2018 the matter came before me on a directions hearing. Counsel for both parties informed me that the issue of the form of the security to be provided had been resolved by the applicants agreeing to pay the amount into court, and that the only remaining issue was whether it should be paid in one tranche or two tranches. The applicants proposed payment in two tranches, the first (in the suggested amount of $200,000) being paid at that stage in respect of the period up to mediation and the second (in the suggested amount of $250,000) in respect of the period thereafter. The applicants’ counsel (erroneously) referred to the second stage as being up to the end of the first day of trial. Thereafter, everyone proceeded on that basis, although in fact the estimate of $450,000 encompassed a 10 day trial. The respondents sought payment of the full amount of $450,000 in a single tranche. The respondents contended amongst other things that there may not be a mediation and, if there were a separate tranche of say $200,000 to cover costs up to that point, it may be that more than that portion (four ninths) of the total of $450,00 would have been incurred by the stage of mediation.
In light of the respondents’ concerns, I suggested that, if there were to be two tranches, the amount of the first tranche be increased to $250,000 to allow a margin for a greater proportion of costs (five ninths) being incurred up to the point of mediation out of the total costs incurred up to the first day of trial. I ruled that the security should be paid in two such tranches. The formal order was:
1The plaintiffs are to pay into court $450,000 on account of the plaintiffs’ prospective liability to pay party party costs in this action up until the first day of trial.
2Of the sum referred to in order 1, $250,000 be paid into court by 4.30 pm on Friday 28 September 2018 that amount being intended to comprise a generous allowance in respect of the potential liability up until the day on which a mediation occurs or otherwise would have occurred.
3The balance of $200,000 be paid within 7 days of a mediation occurring or a date on which a mediation would have otherwise occurred.
I note the following in relation to the terms of that order because issues of construction of the order arise on the hearing of the current application. First, the reference in order 1 to a “prospective” liability was a reference to the liability being contingent and only coming into existence in the future: it was not a reference to the sum of $450,000 only applying to costs incurred after 20 September 2018. This is apparent when the context (set out above) is considered. Secondly, the reference in order 2 to the amount of the first tranche of $250,000 being a “generous” allowance was a reference to the proportion of total costs of $450,000 being incurred up to the point of mediation (being five ninths): it was not a reference to the total amount of $450,000 which had earlier been fixed by the process of conciliation referred to above. Thirdly, the figure of $450,000 had been fixed by reference to costs on the Supreme Court scale and not indemnity costs. Fourthly, as observed above, that figure of $450,000 had on 10 August 2018 been fixed by reference to costs up to the end of a two week trial but morphed inadvertently on 20 September 2018 into a figure applying to costs up to the end of the first day only of trial.
The first tranche of $250,000 was paid into court.
On 28 June 2019 the respondents made an oral application that part of the second tranche be paid into court. I indicated that I was not disposed to make such an order but I was disposed to increase the amount of the first tranche to reflect the fact that less progress had been made in the action than was anticipated when the amounts were formulated and, while there could be an apportionment of fault to each side, the applicants had carriage of the matter and had not proceeded expeditiously and that had resulted in the respondents incurring increased costs. I suggested increasing the amount of the first tranche by $50,000 and this was accepted by both parties. An order was made that a further amount of $50,000 be paid into court. A further $50,000 was paid into court.
On 10 December 2019 Mr Rowley sent a letter to Dr Blaise Prentice-Davidson, the applicants’ principal solicitor, inviting a proposal for the payment of further monies by way of security in respect of a prospective adverse costs order. He said that counsel fees to date were in the order of $100,000 and solicitors’ fees well exceeded that amount.
On 18 December 2019 Mr Rowley swore his ninth affidavit in support of, amongst others, an oral application for a further payment into court. He said amongst other things:
24.As at the date of this my affidavit the Defendants’ costs (combined) are in the order of $400,000.00:
24.1. Fees to counsel in the order of $150,000.00
24.2. Fees to solicitors in the order of $250,000.00
25.Invoices for these fees can be produced on request but would be subject to claims of privilege and may be redacted.
On 16 April 2020 I heard argument on the respondents’ application for a further payment into court. I ordered that a further $150,000 be paid into court by the applicants as security in respect of an adverse costs order in favour of the respondents against the applicants. This was essentially because less progress had been made in the action than was anticipated as at June 2019 when the amount of security had been revised. While the respondents were in part responsible for the delay and the additional costs, the applicants had a substantial responsibility for the action not having proceeded expeditiously and the additional costs that had been incurred. The matter was still not ready for a mediation.
On 6 August 2021 the action was listed for a three week trial to commence on 2 May 2022 (with a fourth week set aside in case the trial did not finish within the three weeks).
On 8 October 2021 an order was made, over the opposition of the respondents, that the parties attend a mediation by no later than 19 February 2022.
On 30 August 2021 the respondents filed an interlocutory application seeking, amongst other things, an order that the applicants pay into court $2,999,490 as security for the respondents’ costs to 27 May 2022.
On 27 August 2021 Mr Rowley swore his thirteenth affidavit in support of the interlocutory application. In relation to historical costs, he said:
5.I have reviewed the records of my firm relating to these proceedings and the costs incurred by the Respondents (on an aggregate basis) between 20 September 2018 and the date of this my affidavit are in the order of $452,374 (“the Historical Costs”) comprised as follows:
5.1. Legal fees $344,630
5.2. Disbursements $53,369
5.3. WIP $54,375
Mr Rowley estimated that the respondents’ costs during a trial running for four weeks would be $677,200 (inclusive of GST). He applied a loading of 30 per cent because these were estimates only and a further loading of 10 per cent because they were being made nine months in advance of the trial. These loadings gave an adjusted estimate of $968,396. Mr Rowley estimated that the respondents’ costs up to the commencement of trial would be twice the trial costs using the rule of thumb referred to in his fifth affidavit, giving a figure of $1,104,000 (inclusive of GST). To this figure he added $110,000 for the pre-trial costs of an expert valuer and expert accountant, $55,000 for miscellaneous costs and expenses and $3,000 for directions hearings. This gave a total for pre-trial costs of $1,272,000 (inclusive of GST). He applied the same loadings of 30 per cent and 10 per cent as he had applied to trial costs to give a total for pre-trial costs of $1,818,960. Finally, he added the historical costs ($452,374) to the estimated pre-trial costs (which he erroneously showed as $1,578,720) and the estimated trial costs ($968,396) to give a total of $2,999,490 (inclusive of GST).
On 11 October 2021 Dr Prentice-Davidson wrote to Mr Rowley requesting copies of all invoices for legal fees in relation to the action since its commencement.
On 27 October 2021 Mr Rowley swore his fourteenth affidavit in further support of the interlocutory application. He said that he had now revisited the calculation of the respondents’ costs in light of the applicants’ request for copies of invoices. He said that invoices for counsel fees since the commencement of the action totalled $180,207 (inclusive of GST). He said that he had exhibited to a previous affidavit the invoices for counsel fees up to 20 September 2018 (totalling $47,822 inclusive of GST) and he now exhibited invoices for counsel fees after 20 September 2018 (totalling $132,385 inclusive of GST).
Mr Rowley included two tables referring to the dates and amounts of invoices for solicitors’ fees and disbursements which totalled $485,954 inclusive of GST (of which $65,176 related to work before 20 September 2018). Mr Rowley did not exhibit the invoices (except for some of the disbursements being transcript fees).
Mr Rowley revised the figures contained in his thirteenth affidavit for historical costs to $666,162 plus $27,500 for work in progress (both inclusive of GST).
Mr Rowley said that he was now instructed to seek security only for the further pre-trial costs of procurement of the respondents’ expert evidence. He reiterated his estimate of the costs of each expert at $55,000 and added $1,650 for disbursements by one expert (both inclusive of GST). He estimated the solicitors’ costs of pre-trial dealing with expert evidence at a range between $68,520 and $84,280 (exclusive of GST). This gave a total of $187,022 to $204,358 (inclusive of GST).
On 5 November 2021 Dr Prentice-Davidson sent a letter to Mr Rowley. He said that Mr Rowley’s statement in his ninth affidavit sworn on 18 December 2019 that the respondents’ costs for counsel fees were in the order of $150,000 was inconsistent with the invoices rendered as at 28 November 2019 totalling $98,642, and additionally with all invoices rendered before and after that date in respect of work undertaken before that date totalling $108,873. He said that Mr Rowley’s statement that the respondents’ costs for solicitors’ fees were in the order of $250,000 was inconsistent with the details of the invoices listed in his fourteenth affidavit showing only one invoice for $31,080 having been rendered as at 18 December 2019. He observed that invoices dated 1 January, 29 January and 28 July 2020 had consecutive invoice numbers (2561, 2562 and 2563) even though they were purportedly rendered over a span of over seven months. He also observed that invoices were rendered with very substantial overlapping periods. He reiterated his request for copies of the solicitors’ invoices.
On 9 November 2021 Philip Craig, an Associate at Charlton Rowley assisting with the matter, sent a letter to Dr Prentice-Davidson attaching redacted copies of solicitors’ invoices rendered from the inception of the action to date.
On 9 November 2021 Dr Prentice-Davidson affirmed an affidavit responding to Mr Rowley’s thirteenth and fourteenth affidavits and referring also to his ninth and tenth affidavits. He exhibited correspondence with Mr Rowley, including his letter dated 5 November 2021. He said that he could not reconcile the content of Mr Rowley’s fourteenth affidavit with his ninth affidavit. He said that Mr Rowley had double counted an invoice for $50,538 both under solicitors’ fees (when it was really a disbursement for counsel fees) and under counsel fees. He said that another invoice for $748 did not relate to this action. He said that he had reviewed the copy invoices attached to Charlton Rowley’s letter dated 9 November 2021 and the total amount invoiced for work undertaken before 18 December 2019 was $166,705 (inclusive of GST).
On 10 November 2021 Mr Craig affirmed an affidavit responding to Dr Prentice-Davidson’s affidavit. He confirmed that the Charlton Rowley invoice for $50,538 was double counted and the invoice for $748 did not relate to this action and both should be disregarded. He said that in consequence the historical costs referred to in Mr Rowley’s fourteenth affidavit should be adjusted to a total of $642,376 (inclusive of GST). He referred to a further invoice (number 3135) having been rendered on 1 November 2021, which included the work in progress referred to by Mr Rowley in his fourteenth affidavit, and said that the unbilled work in progress was now approximately $10,000.
Evidence
The respondents relied on Mr Rowley’s thirteenth and fourteenth affidavits and Mr Craig’s affidavit. They also tendered unredacted copies of all Charlton Rowley invoices rendered from 31 May 2015 to 5 October 2021. These invoices related not only to the action but to other issues between Angas and the Michalakas (Charlton Rowley doing all work on a single file number).
The applicants relied on Dr Prentice-Davidson’s 10 November 2021 affidavit together with an earlier affidavit affirmed by him on 8 October 2021 and Mr Rowley’s ninth affidavit.
The following table shows details of invoices for solicitors’ fees and disbursements (ignoring counsel fee disbursements) rendered by Charlton Rowley (exclusive of GST):
No Invoice No Date Period Amount 1 1593 9/7/2018 18/8/2017 to 3/7/2018 $28,377 2 2561 1/1/2020 29/6/2017 to 6/4/2018 $12,425 3A 0026 28/1/2020 Unspecified $35,000 3B Adjustment 28/1/2020 -$35,287 3C 2562 28/1/2020 16/1/2018 to 2/11/2018 $35,295 4 2563 28/7/2020 2/11/2018 to 17/10/2019 $50,855 5 2631 22/9/2020 27/7/2020 to 31/7/2020 $3,885 6 2708 2/11/2020 7/9/2020 to 22/10/2020 $680 7 2751 4/12/2020 17/10/2019 to 2/12/2020 $72,540 8 2790 5/1/2021 4/12/2020 to 16/12/2020 $2,470 9 2815 1/3/2021 14/1/2021 to 24/2/2021 $780 10 2865 6/4/2021 3/3/2021 to 1/4/2021 $6,203 11 2885 1/5/2021 6/4/2021 to 30/4/2021 $10,590 12 2921 2/6/2021 2/5/2021 to 25/5/2021 $14,800 13 2969 1/7/2021 4/6/2021 to 30/6/2021 $10,450 14 3038 2/8/2021 1/7/2021 to 2/8/2021 $29,960 15 3073 2/9/2021 3/8/2021 to 1/9/2021 $61,682 16 3106 5/10/2021 23/8/2021 to 1/10/2021 $52,782 17 3135 1/11/2021 Invoice not tendered $44,166 18 Various CAA transcript invoices $1,424 Total $439,077
The invoices for counsel fees are dated 1 March 2018 to 7 June 2021 and cover the period from 11 October 2017 to 26 May 2021. They total $163,025 (exclusive of GST).
Mr Rowley was cross-examined on his affidavits.
In Mr Rowley’s oral evidence, he said that the work undertaken by solicitors in his firm (including himself) was not necessarily recorded on the day or in the week or month in which it was undertaken, particularly during some of the periods of the currency of this action. He said that some of the work undertaken was not necessarily ever recorded or charged.
In relation to his estimate that counsel fees were in the order of $150,000 (inclusive of GST) in his 18 December 2019 affidavit, Mr Rowley accepted that invoices for counsel fees rendered to that stage were approximately $100,000 (inclusive of GST) and that he had unintentionally overstated counsel fees by approximately $50,000. He said that he did not review the invoices before he swore his affidavit.
In relation to his December 2019 estimate that solicitors’ fees were in the order of $250,000 (inclusive of GST), Mr Rowley said that he does not now specifically recall how he arrived at that figure. He said that he had no knowledge at the time of how much had been invoiced to Angas. Based on subsequent invoices, the maximum amount of work in progress that could have been recorded at that point was $151,550 (exclusive of GST), but it is likely to have been significantly less if there were significant delays in recording work undertaken (which is suggested by an analysis of invoices). Mr Rowley said that he had a general idea of the work that had been undertaken by his firm and used that general idea to arrive at a figure of $250,000 (inclusive of GST). He did not dispute that the amount that had been invoiced at the time was only $28,377 (exclusive of GST). He accepted that the amount that has now been invoiced in respect of the period before 18 December 2019 was only $151,550 (exclusive of GST).
There is a large overlap between the time periods covered by invoices 1, 2 and 3C numbered in the above table. There is also a large overlap between the time periods covered by invoices 5 and 6 on the one hand and a smaller overlap between invoices 6 and 7 on the other hand. Although Mr Rowley said that he does not recall the explanation in this particular case, he gave as a general explanation that later invoices covering the same time period as that covered by earlier invoices would probably be due to work only being recorded after the issue of the earlier invoices. Accepting this explanation, it follows that work undertaken as early as January 2018 was not recorded until sometime after January 2020 and work undertaken in July 2020 was not recorded until sometime after September 2020.
Mr Rowley was not able to explain why invoices 2, 3C and 4 have consecutive invoice numbers even though the dates of the invoices span the period from 1 January 2020 to 8 April 2020. He accepted that it was a possibility (although he did not recall) that one or more of the invoices may have been backdated. Invoice 3A (invoice number 0026) contains no narrative detail or reference to a time period and is for a round figure amount of $35,000. Objectively assessed, assuming that that invoice was rendered in January 2020, the most likely explanation is that invoice 3C was rendered sometime later (perhaps in July 2020 when invoice 4 was rendered) when a detailed narrative was prepared for the work originally covered by invoice 3A and a credit was given so that only a net amount of $9 (including GST) was payable.
In relation to the estimate contained in his fourteenth affidavit of work in progress of $27,500, Mr Rowley said that he did not review the work in progress recorded at that time but directed someone in his firm to prepare the information.
The respondents objected to a passage of the cross-examination of Mr Rowley relating to the alleged inadequacy of the estimates of costs contained in his ninth affidavit on the ground that it is not relevant and asked that it be received de bene esse. To the extent that that objection was pursued, I overrule it. That evidence is relevant to the estimates of costs now relied on by the respondents.
Assessment
As observed above, the respondents do not at this stage press the application for payment into court on account of a potential adverse costs order in respect of work beyond the mediation date. The amount of the additional payment into court sought was only formulated during the hearing of the application and was reformulated from time to time during the hearing.
The ultimate formulation put is on the basis that the respondents’ costs should be considered exclusive of GST and that those costs to date total $612,102 comprising:
·Charlton Rowley invoices $439,077
·Charlton Rowley work in progress $10,000
·Counsel fee invoices $163,025
In addition, the formulation is put on the basis that further costs will be incurred by the respondents in connection with the obtaining of expert reports before mediation totalling $170,020 to $185,780 as follows:
·Expert fees and disbursements $101,500
·Solicitors’ costs $68,520 to $84,280
The total of these costs is $782,122 to $797,822. The amount paid into court in respect of the period up to the mediation totals $480,000. The respondents seek a further payment into court of the difference.
The respondents contend that, in order for the applicants to be fully indemnified against the risk of an adverse costs order, the amount paid into court should reflect the costs (past and prospective) incurred by the respondents on an indemnity basis as opposed to the standard basis. The respondents accept that the ordinary costs order made in favour of a successful party is on the standard basis but contend that now the possibility should be allowed for costs to be awarded on an indemnity basis. An example of circumstances in which this might occur would be if a reasonable settlement offer by the respondents had been rejected by the applicants. The respondents do not adduce any evidence that they have made a settlement offer and, if they have, as the potential trial judge I should not be privy to it. However, the respondents do not request that their application for payment of additional monies into court be heard by another Judge who could be privy to any settlement offers.
The original formulation by the respondents of the amount said to be necessary to indemnify the applicants against an adverse costs order in Mr Rowley’s letter dated 16 January 2018 was calculated on the standard basis and was calculated by discounting full costs (albeit the applicants’ costs rather than the respondents’ costs) to 66 per cent. The same approach was adopted by the respondents in Mr Levitt’s letter dated 8 August 2018 and it was on the basis of this approach that the original amount of $450,000 (comprising $250,000 to mediation and $200,000 thereafter) was fixed in August and September 2018. It was also used by Mr Rowley in his thirteenth affidavit sworn on 27 August 2021 which supported the present application.
Given the approach taken to date of assessing the amount to be paid into court on account of a prospective adverse costs order and the lack of any basis for me to assess that there is a reasonable possibility that an adverse costs order would be made on an indemnity basis, it is appropriate to assess those costs on the standard basis.
In relation to historical costs, as the applicants point out, costs for some of the work undertaken by the respondents’ lawyers will not be recoverable from the applicants (and indeed would not be recoverable even on an indemnity basis) if an adverse costs order is made against the applicants. This includes, for example, costs of amendments to the respondents’ defence other than in response to amendments to the applicants’ statement of claim and costs caused by breaches of court orders or other defaults by the respondents. Mr Rowley in his affidavits has (and the respondents in their evidence more generally have) made no attempt to quantify such costs or deduct them from the amount said to be required to be paid into court.
Leaving aside such a reduction, applying the discount to 66 per cent adopted by Mr Rowley as summarised above would reduce the historical costs to $403,987. This leaves aside a concern about the accuracy of time recording if in fact time has been recorded months after work was undertaken.
In relation to future costs, I am unable to rely on Mr Rowley’s estimate of future solicitors’ costs in connection with expert reports of $68,520 to $84,280. First, I have regard to the errors and overstatements made by Mr Rowley when considering this estimate as summarised in the previous section. Secondly, and more importantly, it appears that some of this work has already been undertaken by Charlton Rowley and invoiced to Angas and it is impossible to ascertain what work has not yet been undertaken or invoiced. This leaves the estimated costs to be charged by the experts totalling $101,500. There was no challenge in cross-examination to these estimates and I accept them for the purpose of this application.
Adding the estimates of $101,500 to the figure of $403,987 referred to above gives a total maximum figure of approximately $500,000. This figure is not sufficiently different to the amount already paid into court of $480,000 to justify an order for payment of an additional amount, especially taking into account the matters referred to at [60] and [61] above.
Conclusion
I dismiss the respondents’ application for payment of a further amount into court on account of the applicants’ potential liability under an adverse costs order in respect of the respondents’ costs of action to the date of mediation. I will hear the parties concerning the costs of that application.
0
1
1