Kuek v Devflan Pty Ltd
[2011] VSCA 25
•10 February 2011
SUPREME COURT OF VICTORIA
COURT OF APPEAL
| S APCI 2009 3746 | |
| GABRIEL KUEK | Applicant |
| v | |
| DEVFLAN PTY LTD & ANOR | Respondents |
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JUDGES: | NEAVE, HARPER and HANSEN JJA | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 16 June 2010 | |
DATE OF JUDGMENT: | 10 February 2011 | |
MEDIUM NEUTRAL CITATION: | [2011] VSCA 25 | |
JUDGMENT APPEALED FROM: | Kuek v Devflan Pty Ltd [2009] VSC 91 (Beach J) | |
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COSTS – Costs orders against applicant – Applicant objected to respondents’ bill of costs – Applicant alleged respondents had breached indemnity principle by recovering more on party/party taxation than actual liability to lawyers – Applicant sought production of disclosure and retainer letters – Respondents refused to produce – Respondents’ costs taxed at $39,105.20 by Taxing Master – Review by Taxing Master – Applicant renewed call for documents – Taxing Master refused to require production – Costs varied to $38,730.20 – Review by judge – Judge correctly required respondents to produce disclosure and retainer letters as documents relevant to alleged breach of indemnity principle – Judge refused to remit to Taxing Master – Judge found no breach of indemnity principle and dismissed review – Taxation fundamentally miscarried before Taxing Master and judge – Findings not open on evidence – Appeal allowed – Review remitted to Costs Judge.
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| APPEARANCES: | Counsel | Solicitors |
| For the Applicant | Mr A W Sandbach | Access Law |
| For the Respondents | Mr I G Waller SC and Mr R Antill | Brygel Lawyers |
NEAVE JA:
I have had the advantage of reading the judgment of Hansen JA in draft form and I agree for the reasons he gives that the appeal should be allowed.
HARPER JA:
I also agree with Hansen JA.
HANSEN JA:
Introduction
Gabriel Kuek (‘the applicant’) seeks leave to appeal from orders of a judge in the Trial Division made on 20 March 2009,[1] dismissing an application to review orders of the Taxing Master[2] made on a review on 8 February 2008 and 29 October 2008.
[1][2009] VSC 91.
[2]The office of Taxing Master has been replaced by that of Costs Judge, following the establishment of the Costs Court by the Courts Legislation Amendment (Costs Court and Other Matters) Act 2008. Effective 31 December 2009, that Act inserted Division 2B in Part 2 of the Supreme Court Act 1986 which establishes the Costs Court within the Trial Division (s 17C) and provides that the Chief Justice must allocate an Associate Judge to be a Costs Judge of the Costs Court (s 17E). The Taxing Master, who was Wood AsJ, has been allocated to be and is presently the only Costs Judge and presides over the Costs Court.
For the reasons which follow, the orders of the judge and the Taxing Master should be set aside and the proceeding remitted to the Costs Judge for a fresh review in accordance with law.
Background
The proceeding has a long and unfortunate history. On 4 September 2003 the applicant brought a claim in the Magistrates’ Court against Devflan Pty Ltd and Mr Ljubomir Nikolovski (‘the respondents’) for damages of $3,855.90 allegedly
caused by defective repairs to the applicant’s motor vehicle. The magistrate dismissed the claim with costs. The applicant appealed on a question of law to the Trial Division. The appeal was dismissed by Balmford J with indemnity costs.[3] The applicant appealed to the Court of Appeal. That appeal was also dismissed,[4] save that the order for indemnity costs was set aside and in lieu thereof the applicant was ordered to pay the respondents’ costs of the appeals on a party/party basis.
[3][2005] VSC 163.
[4][2006] VSCA 186.
On 6 March 2007 the respondents filed a summons for taxation, with a bill of costs covering all of the proceedings in the Supreme Court. The bill contained 273 items and totalled $46,585.60.
The applicant filed a notice of objections, dated 27 June 2007, pursuant to r 63.47 of the Supreme Court (General Civil Procedure) Rules 2005. Among other things, the notice stated that the applicant required production of s 86 compliance letters[5] and retainer letters. I refer below to the significance of these documents.
[5]Letters of disclosure between a solicitor and his or her client required under s 86 of the (now repealed) Legal Practice Act 1996 (‘the 1996 Act’). See now s 3.4.9 in Division 3 of Part 3.4 of the Legal Profession Act 2004 (‘the 2004 Act’).
Following a taxation conducted on 17 August and 10 October 2007, the Taxing Master allowed the respondents’ costs in the sum of $39,105.20.
By notice dated 24 October 2007, the applicant sought a review by the Taxing Master, pursuant to r 63.56.1.
At the relevant time, r 63.56.1 provided:
(1)Where any party interested objects to an order of the Taxing Master allowing or disallowing, wholly or in part, any item in a bill, or allowing some amount in respect of any item, the Taxing Master may, on the application of that party, review the order.
(2) An application under paragraph (1) shall be made by notice.
(3) The notice—
(a)shall state by a list each item in the bill in respect of which the party objects to the order of the Taxing Master; and
(b)shall also state specifically and concisely the grounds of objection to that order and the order sought in its place.
(4)…
(5) Upon the application the Taxing Master—
(a)shall reconsider and review the taxation upon the objections stated in the notice; and
(b)shall make an order confirming the taxation or make such further or other order as may be necessary.
(6)For the purposes of the review the Taxing Master may receive further evidence in respect of any objection.
(7)…
In addition to these broad powers on review, r 63.35 provided that on a taxation of costs under O 63 the Taxing Master ‘shall have and may exercise all the power and authority which under … these Rules a Master has on the hearing of an application in a proceeding.’ It is significant that this power is not limited by reference to any particular rule. It is a broad grant of power, its application depending on the requirements of the particular case.
In Ausvest Holdings Pty Ltd v Russell Kennedy (a firm)[6], Smith J upheld a submission that general discovery was not available in a taxation, but held that r 63.35 incorporated the power to order specific discovery under r 29.07, and production of documents under r 40.12. As the judge below noted, general discovery was not sought in the present case; what was sought was the production of particular documents. The processes of production of documents on request, or subpoena, must also be available on taxation, the propriety or ambit thereof being determinable only in the particular circumstances. The judge expressed agreement with Smith J and so do I.
[6][2004] VSC 365.
It is also to be noted that under r 63.39(3) ‘the Taxing Master may direct the party seeking taxation of a bill to lodge before the hearing any documents in that party’s possession, custody or power that will be required for the purpose of evidence on the taxation’.
Turning now to the grounds of review raised by the applicant before the Taxing Master, the grounds objected to all items in the bill as follows:
1.Items 1 to 276 inclusive [save for those items that have been disallowed], on the grounds that:
(a)… the Court cannot be satisfied the total amount of $39,105.20 allowed does not exceed the Respondents’ actual liability to their lawyers.
(b)the [Applicant] has been denied natural justice and/or procedural fairness by the Respondents’ refusal, neglect and/or failure to produce documents relating to their liability for legal costs and disbursements.
In place thereof, a total amount not exceeding the Respondents’ actual liability to their lawyers.
2.Items 17, 22, 68, 87, 98, 111, 151, 172, 195, 198, 207, 209, 256 [amounts in respect of facsimiles] on the ground that they were not necessary or proper for the attainment of justice or for enforcing or defending the rights of the Respondents.
In place thereof, allowances for only the items that were necessary or proper for the attainment of justice or for enforcing or defending the rights of the Respondents.
3.Items 7, 8, 94, 95, 167, 191 [amounts in respect of perusing and scanning documents] on the ground that the Respondents had not provided sufficient evidence to prove that the amount claimed for the work alleged to have been undertaken [can] be justified; alternatively that the work was not done with due care.
In place thereof, amounts as reasonably reflect the work actually done.
4.Item 212 [instructions for brief] on the ground that the amount of $2,000.00 allowed by the Taxing Master was excessive.
In place thereof, an amount of $1,200.00.
5.Items 213, 214, 215, 216, 225, 226, 239, 240, 243 and 244 [amounts in respect of senior counsel] on the ground that the retention of Senior Counsel was not necessary or proper for the attainment of justice or for enforcing or defending the rights of the Respondents.
In place thereof, that the items be disallowed in full.
6.Item 216 [senior counsel’s fee] on the grounds that:
(a)By the agreement of counsel, the Respondents’ liability was capped at $5,000.00.
(b)Alternatively, goods and services tax of $500.00 should be deducted from the amount of $5,500.00 allowed.
In place thereof, an allowance of $5,000.00.
7.Item 220 [junior counsel’s fee] on the grounds that:
(a)By the agreement of counsel, the Respondents’ liability was capped at $2,500.00.
(b)Alternatively, goods and services tax of $250.00 should be deducted from the amount of $2,750.00 allowed.
Following the review, on 8 February 2008 the Taxing Master published written reasons for decision. He partially upheld grounds 6(b) and 7(b) respectively, in circumstances where the respondents conceded that the second respondent was not registered for GST purposes and hence his half of the GST amounts referred to in those grounds needed to be deducted from the bill. The result was that $250 was deducted from the amount in respect of senior counsel (ground 6(b)), and $125 was deducted from the amount in respect of junior counsel (ground 7(b)), making for a total deduction of $375 from the previously taxed sum. The applicant’s other grounds of review were dismissed. The Taxing Master ordered that ‘the order of 10 October 2007 is varied on review from $39,105.20 to $38,730.20.’ He also directed written submissions in relation to the costs of the review.
On 26 March 2008 the Taxing Master ordered that there be no order as to the costs of the review. This order was made without reference to the respondents’ costs submissions, which had been filed but had apparently not found their way onto the Court file. After those submissions were drawn to his attention, and after hearing further argument, on 29 October 2008 the Taxing Master set aside his order of 26 March 2008 and ordered the applicant to pay 90 per cent of the respondents’ costs of the review up until 26 March 2008.
On 12 November 2008, the applicant filed a notice of application to review the Taxing Master’s orders of 8 February 2008 and 29 October 2008 pursuant to r 63.57 which, at the relevant time, provided:
(1)An order of the Taxing Master under Rule 63.56.1 may be reviewed by a Judge.
(2)Where any party interested objects to an order of the Taxing Master under Rule 63.56.1, a Judge may on the application of that party review the order if the Taxing Master has given reasons under paragraph (7) of that Rule.
(3) An application under paragraph (2) shall be made by notice.
(4) The notice—
(a)shall state by a list each item in the bill in respect of which the party objects to the order of the Taxing Master on the review; and
(b)shall also state specifically and concisely the grounds of objection to that order and the order sought in its place.
(5)…
(6) On the review, unless the Judge otherwise orders—
(a) further evidence shall not be received;
(b)the party giving notice shall not raise any ground of objection not stated in the notice.
(7) On the review, the Judge may—
(a)exercise all the powers and discretions of the Taxing Master with respect to the subject matter of the review;
(b) confirm, set aside or vary the order of the Taxing Master;
(c) remit any item in the bill to the Taxing Master;
(d) make such other order as the case requires.
(8)...
It is thus seen that a judge hearing a review from the Taxing Master has broad powers of disposition including to remit any item in the bill to the Taxing Master.
It is not necessary to set out the grounds of review in the notice before the judge, as they were materially identical to the grounds of review before the Taxing Master.
Before referring to the judge’s reasons for dismissing the application for review, it is necessary to say more about the review before the Taxing Master.
The Review before the Taxing Master
As to ground 1, the applicant’s complaint about the respondents’ ‘failure to produce documents relating to their liability for legal costs and disbursements’ was a reference to the non-production of disclosure letters under s 86 of the 1996 Act[7] and letters evidencing the terms of the respondents’ retainer with their solicitors. The applicant had previously sought production of such documents, including by a Notice to Produce, but the respondents had not produced them.
[7]The applicant also relied, in the alternative, on the like provision in s 3.4.9 of the 2004 Act.
The applicant’s counsel submitted to the Taxing Master that there was ample evidence that the respondents’ lawyers had not been retained on a commercial basis, in the sense that the fees charged were at discounted rates. In this regard, the applicant’s written submission referred to the costs claimed for each of the four separate stages of the proceeding in the Supreme Court, namely (1) the leave application in the Trial Division ($6,556.30), (2) the appeal before Balmford J ($6,021), (3) the leave application in the Court of Appeal ($4,337.30) and (4) the appeal to the Court of Appeal ($25,223.10). Noting that the amount for the last stage represented almost 60% of the costs of the whole proceeding in the Supreme Court, the applicant submitted that:
… it is inconceivable that the respondents would have engaged their lawyers on a commercial basis for the last stage had they known their costs liability would be as claimed. It is highly probable that the respondents had entered into agreements with their lawyers to limit their costs liability.
In this regard, the applicant referred to evidence that the respondents’ senior counsel’s invoice sought $11,000 including GST, yet Item 216 of the respondents’ bill of costs stated that senior counsel had agreed to accept in full settlement of his fees ‘the amount allowed on taxation or $5,000 whichever is higher’. Similarly, junior counsel’s fees were $4,000 but he had agreed to accept in full settlement ‘the amount allowed on taxation or $2,500 whichever is higher’.
In short, it was submitted that the amounts actually payable were less than the amounts claimed, but the precise form of the retainer was unrevealed, hence the terms of the arrangement were not clear. The applicant submitted that the Taxing Master should know the terms of the retainer in order to ascertain the respondents’ liability to their lawyers, and hence the applicant’s maximum liability to compensate the respondents under the costs order. Moreover, in the absence of such evidence it was not open to the Court to tax the respondents’ bill as if the respondents’ costs and expenses were thus ascertainable on a party/party basis and to order the applicant to pay the amount so ascertained. Alternatively, it was submitted that the applicant was denied natural justice or procedural fairness by reason of the respondents’ costs being taxed without the applicant being given the opportunity to make submissions with respect to the costs to which the respondents had been put.
In his reasons dealing with this submission, the Taxing Master referred to the indemnity rule, and described the applicant’s rationale as being to seek to show that – whether because of inadequate disclosure under s 86 or s 3.4.9 (thus potentially reducing the respondents’ liability to their own solicitors because of non-compliance with the Acts),[8] or on the terms of the retainer itself – the respondents offended the indemnity rule by seeking to recover from the applicant on the taxation more than they were liable to pay their own solicitor.
[8]See s 91 of the 1996 Act; s 3.4.17 of the 2004 Act.
However, the Taxing Master refused to order production of the documents sought. As to the s 86 letters, he said that the flaw in the argument was that the impact of non-compliance (being the possible reduction of the amount of the bill) is considered on an assessment of a bill of costs under the review provisions in s 115 of the 1996 Act which provides that the assessed amount of a bill may be reduced by an amount considered by the assessor to be proportionate to the seriousness of the failure to give the information. He then said:
If [the applicant’s] submission were to be accepted then the practical effect would be that no party and party taxation could be completed until there had been a solicitor and own client taxation under the Act even though neither the party favoured by the costs order or the solicitor acting for them required one.[9]
[9]Taxing Master’s reasons, [9].
As to the retainer letters, he said:
I ruled against the [applicant], in part, on the same principle that a quantification of the Respondents’ own solicitor costs would have to occur prior to taxing a party and party bill.
Leaving aside the merits of the argument, from a practical point of view if this were to become part of the taxation landscape the production of these documents would mean that the taxation of party and party costs would be significantly and unnecessarily prolonged and delayed.[10]
[10]Ibid [11]-[12].
He referred to a submission of the respondents that, as officers of the Court, the respondents’ solicitors would not seek to recover from the applicant more than what the respondents themselves were obliged to pay their solicitors. He described that as ‘a proposition [that] ought to be uncontroversial’, thus seemingly indicating an acceptance that the respondents’ solicitors would in fact so act. He then stated, ‘by way of comment only’, that the issue whether a successful party was entitled to claim party/party costs could have been raised by the applicant before Balmford J or the Court of Appeal before the orders for costs were made, ‘if they had a concern about the issue’.[11]
[11]Ibid [17].
He then referred to a number of authorities[12] for the propositions that ‘it would be most unusual for an agreement to exist [by] which the solicitors have foregone their right to recover costs from their own client’ and that ‘there is a presumption that such an agreement does not exist’. He quoted a passage from R v Miller[13] where Lloyd J stated that ‘If it appears to the taxing officer that there is doubt whether there was an express or implied agreement binding on the solicitors not to seek to recover the costs from the client the taxing officer should ask for further evidence.’[14] The Taxing Master then stated[15] ‘by analogy there would need to be some basis for the [applicant] to demonstrate that the costs charged on scale may exceed the indemnity principle before the taxation would be diverted by such an inquiry.’ He stated that discovery was not available in a taxation of costs, referring in that respect to Giannarelli v Wraith (No. 2).[16] He stated, however, that it was clear from Giannarelli that the taxing officer had power to require production of documents to resolve a factual issue arising in a taxation. But, the Taxing Master said, he ‘was of the view that there was no basis [on which] to call for the production of disclosure or retainer documents’.
[12]Davies v Taylor (No 2) [1974] AC 225, 234; R v Miller (1983) All ER 186, 190-191; Hudgson v Endrust (Aust) Pty Ltd (1986) 11 FCR 152.
[13](1983) 3 All ER 186.
[14]Ibid 190-1.
[15]Taxing Master’s reasons, [20].
[16](1991) 171 CLR 592, 599 (McHugh J).
He continued by referring in summary to points in the parties’ submissions. He rejected the applicant’s submission that the respondents’ lawyers were not engaged on a commercial basis, and concluded that there was no basis on which to embark on an inquiry into the basis of the items claimed in the bill. He held that there was no change on review as to ground 1.
He then dealt with the remaining grounds of review, but it is unnecessary to refer to his reasoning on those grounds here.
The review before the judge
At the hearing before the judge, counsel for the applicant renewed the application for production of the s 86 letters and the retainer letters. The respondents opposed the application on several grounds referred to below.
After hearing argument, the judge ruled that the letters were relevant, as they ‘had the capacity to bear upon the amount of the [applicant’s] liability pursuant to the party/party order for costs made against him’. Consequently, he ordered production of seven letters, together with a document entitled Retainer Costs and Fees Agreement. I will refer to this latter document as ‘the costs agreement’ wherever convenient. Argument then ensued as to privilege and the judge ruled that certain parts of the letters were privileged. He permitted the respondents to redact the letters accordingly, following which the redacted letters and the costs agreement were produced to the applicant’s counsel. The judge asked the applicant’s counsel what he wanted to do, whereupon counsel said that he needed to digest the material and get some instructions, and to that end sought (and was granted) an adjournment over lunch.
Upon resuming at 2.15pm, counsel for the applicant tendered the whole of the material produced to him and addressed submissions. It is necessary to refer to these submissions in detail.
Counsel referred to a letter dated 17 August 2005 in which the respondents’ solicitor explained to his client the potential costs consequences of the applicant’s appeal to the Court of Appeal from the decision of Balmford J. Among other things, the letter stated that ‘in usual circumstances of an appeal to the Court of Appeal, a Senior Counsel (“SC”) would appear together with a junior’ and that if the appeal was successfully defended and the respondents obtained a costs order in their favour, they would probably recover:
… approximately 60-70% of the costs that I would ordinarily charge you (however, as with the Magistrates’ Court proceeding, I anticipate that I would actually reduce my rates, having regard to the amount in dispute and also having regard to the ultimate outcome).[17]
[17]Emphasis added.
Counsel also referred to a letter dated 23 May 2006 which referred to and repeated the advice in the 17 August 2005 letter that ‘in usual circumstances in a Court of Appeal matter, a senior counsel (SC) would appear together with a junior’ and provided estimates of costs if senior counsel were briefed. Counsel also referred to a letter dated 10 June 2006 which stated:
Even though the matter is now in the Supreme Court of Appeal, I confirm that I intend to continue to charge in accordance with the retainer agreement executed by you on 21 November 2003 (for the Magistrates’ court matter).
In view of the amount involved in this actual dispute, I have, at all times reduced my accounts very substantially to date, as has [counsel], notwithstanding that the actual technical and legal issues have been complex.
Counsel submitted that this material led to the inference that the respondents’ solicitor was saying to his client, in effect, that he was only going to charge him as though the case was a Magistrates’ Court case, given the amount in dispute, and that certainly it was not a case involving a scale of costs that might apply to the County Court or Supreme Court. The respondents’ solicitor having agreed to charge his client on this lower basis, it was not open to him to then seek costs from the applicant on the Supreme Court Scale. Counsel submitted:
At the very least the existence of the retainer agreement is necessary to be seen because it has to be taken into account in any proper exercise of discretion. But I submit that it goes further than that, it’s not really a matter of discretion at all. You can’t get out of [the applicant] more than you’re charging your client.
If I may say so, the appearance is that the entire bill has been formulated on a wrong basis. I say wrong because it wasn’t the basis that was before the client, it wasn’t what was agreed with the client. I maintain that that’s a very important matter and that those facts not having come out before, and I mean the facts I’ve just been referring to, undermine the entire proceeding in a fundamental way, I should say the entire costs proceeding in a fundamental way.
Counsel then referred to the basis for charging professional fees and expenses set out in the costs agreement. Professional fees would be charged on a time basis (based on units of six minutes), at $20 for attendance by a lawyer, and $12 by a clerk, exclusive of GST. In exceptional circumstances a premium may be charged having regard to complexity, specialised knowledge, responsibility and/or urgency. Counsel stated that his instructions were that there was a significant difference between the costs payable under that agreement and the costs stated in the party/party bill. He stated that his instructor had not done a recalculation; he was instructed that a recalculation would take ‘some time’. He submitted that in the first instance the respondents should prepare a bill in a form which ‘follows the retainer’.
Counsel submitted further that, as a matter of natural justice, a person ordered to pay costs has an entitlement to be informed of, and read, the document that sets out or is relevant to the amount to be paid. Here, the Taxing Master did not engage with the proper questions when he determined not to require production of the documents. His reasons did not address the centrality and importance of the retainer to the exercise being carried out, and the applicant’s ability to contest what was being claimed. It followed, he submitted, that the proceeding before the Taxing Master miscarried.
The following exchange then occurred:
HIS HONOUR: I take it, Mr Perkins, the parties are in heated agreement that in the event that I determine that something went wrong before the Taxing Master, if it’s possible for me on the material to effectively perform that part of the taxing again, as the rule contemplates, I should rather than send it back … before the Taxing Master again. I mean one is very tempted sitting up here to sort of say, if I think something went wrong I’ll send it back to the Taxing Master with directions because that’s easy for me. On the other hand I am somewhat conscious of the fact that this is litigation that has been going on for a long time and if by a little extra effort on my part I can dispose of it, I should.
MR PERKINS: Your Honour, for those who appear as counsel that sort of, if I may say so with respect, offer, the possibility Your Honour is raising, is always welcome but I have to say that notwithstanding some enthusiasm on my part when I heard Your Honour say that this morning, it has been pointed out to me by my instructor how central these matters really are and how they really go to - - -
HIS HONOUR: But I can do the whole thing.
MR PERKINS: If Your Honour is, with respect, I’m certainly not going to be ungracious about Your Honour saying that, it’s a matter for Your Honour. But as it seemed to me, with respect, when one takes the degree to which this went away from the agenda it should have followed, it should be re-done. Now, I’m not understanding that Your Honour is saying that you wouldn’t do that, on the contrary. But it’s really a matter for Your Honour to determine whether you think that it’s appropriate for you to do it. I have explained why we couldn’t do it immediately but I think I should say no more about that, Your Honour.
In the course of his submissions to the judge, the respondents’ counsel referred to the difficulty that would be introduced if a solicitor had to prepare two bills, one between the solicitor and his or her client, and the other as between party and party. That exercise would be time consuming, expensive and inappropriate for the reasons stated by the Taxing Master. Further, he submitted, the subject documents had no bearing on the assessment of the party/party taxation. Finally, counsel adopted the judge’s suggestion that he deal with the matter rather than remit it to the Taxing Master.
In a reserved judgment, the judge set out the history of the proceeding, the terms of r 63.57, and stated that the Court approached the review of a taxation by the Taxing Master on the basis stated by Kitto J in Australian Coal and Shale Employees Federation v The Commonwealth.[18] The judge quoted a lengthy passage from Kitto J’s judgment, which included the statement that:[19]
…the true principle limiting the manner in which appellate jurisdiction is exercised in respect of decisions involving discretionary judgment is that there is a strong presumption in favour of the correctness of the decision appealed from, and that that decision should therefore be affirmed unless the court of appeal is satisfied that it is clearly wrong. A degree of satisfaction sufficient to overcome the strength of the presumption may exist where there has been an error which consists in acting upon a wrong principle, or giving weight to extraneous or irrelevant matters, or failing to give weight or sufficient weight to relevant considerations, or making a mistake as to the facts. Again, the nature of the error may not be discoverable, but even so it is sufficient that the result is so unreasonable or plainly unjust that the appellate court may infer that there has been a failure properly to exercise the discretion which the law reposes in the court of first instance: House v. The King[20]. So, too, in my opinion, the exercise of the jurisdiction to review a taxation of costs is subject to no narrower limitation than that which was stated by Bovill C.J. and Brett J. in Hill v. Peel[21]:—‘A very wide discretion must necessarily be left to the taxing officer, which must be exercised by him after a careful consideration of the particular circumstances of each case; and where, after properly considering the matter, the master has arrived at a decision, it lies upon those who impeach his decision to satisfy the Court that he is wrong. Where a principle is involved, the Court will always entertain the question, and, if necessary, give directions to the master; but, where it is a question of whether the master has exercised his discretion properly, or it is only a question as to the amount to be allowed, the Court is generally unwilling to interfere with the judgment of its officer, whose peculiar province it is to investigate and to judge of such matters, unless there are very strong grounds to shew that the officer is wrong in the judgment which he has formed’[22].
[18](1953) 94 CLR 621.
[19]Ibid 627-628.
[20](1936) 55 CLR 499, 504-505.
[21](1870) L.R. 5 C.P. 172.
[22]Ibid 180-1.
The judge then referred to, and stated reasons for rejecting, the respondents’ submissions opposing production of the disclosure and retainer documents, as follows:
(a)As to the argument that the solicitor for the respondents was an officer of the Court and therefore would not seek to recover more from the applicant than his own clients were obliged to pay him, the argument was not persuasive. It involved the solicitor being a judge in his own case as to whether the amount of the party/party bill exceeded his own clients’ liability to him. If the applicant’s underlying argument was a good one, then the issue should be determined by the Court, rather than by the respondents’ solicitor.
(b)The retainer letters were relevant, as they were reasonably likely to add in some way to the relevant evidence in the taxation or, to put it another way, they related to the subject matter of the proceeding. See Waind v Hill & National Employers’ Mutual.[23]
(c)That the applicant might have raised the issue (as to the alleged infringement of the indemnity principle) in the Court of Appeal did not preclude him from raising the issue on the taxation. Indeed, the judge considered that had the applicant sought production of the retainer letters before the Court of Appeal for the purpose of making submissions concerning his liability as to costs, the Court of Appeal would have taken the view that this was a matter for taxation.
(d)The possibility that the respondents might have to prepare a solicitor/client bill did not preclude production.
(e)Cases where (on their facts) a party has been held entitled to costs notwithstanding that the party did not have to pay costs to his or her solicitor did not preclude the applicant from arguing that the present was not such a case.
(f)The respondents relied on the statement of McHugh J in Giannarelli v Wraith (No. 2)[24] that ‘… in taxation proceedings in this Court, the claimant’s solicitor is not required to produce the file. Furthermore, discovery is not available in a taxation of costs.’ The judge observed, correctly, that Giannarelli did not aid the respondents. First, because in the present case, the applicant sought production of relevant documents, rather than discovery. Secondly, in Ausvest Holdings Pty Ltd v Russell Kennedy (A firm), Smith J had held that the Taxing Master has power to order specific discovery, as well as production of documents under r 40.12. The judge agreed with that decision.
[23][1978] 1 NSWLR 372.
[24](1991) 171 CLR 592, 599.
The judge then dealt with the grounds of review as follows. As to review ground 1, he correctly identified the challenge made to the Taxing Master’s orders as being based on the ‘indemnity principle’, namely that because costs are awarded as an indemnity, a party cannot recover more than the amount for which he or she is liable to his or her own solicitor. Hence, the respondents could not recover from the applicant costs in an amount greater than that which the respondents were liable to pay their own solicitor. As the judge put it, the applicant’s argument was that the bill should be reduced to the amount for which the respondents were in fact liable to their solicitor. The judge noted that support for the argument was to be found in the following authorities: Irving v Gagliardi; Ex parte Gagliardi (No. 2),[25] Adams v London Improved Motor Coach Builders Limited,[26] Backhouse v Judd,[27] Johnson v Santa Teresa Housing Association[28] and Wentworth v Rogers.[29]
[25](1895) 6 QLJ 200.
[26][1921] 1 KB 495.
[27][1925] SASR 395.
[28](1992) 83 NTR 14.
[29](2006) 66 NSWLR 474.
The judge then referred to the material he had ordered the respondents to produce. As to the s 86 compliance letters, there was no deficiency in the solicitor’s compliance with the statutory disclosure requirements, and accordingly there was no basis for reducing the amount of the party/party bill pursuant to either s 91 of the 1996 Act or s 3.4.17 of the 2004 Act.[30]
[30][2009] VSC 91, [14].
The judge then considered ‘the possibility that the retainer letters would disclose that the respondents were liable to their solicitor in a smaller amount than the amount of the party/party bill’. He stated:
I have examined the retainer letters, the party/party bill and the signed costs agreement. Having examined these documents, I am unable to conclude that the total of the party/party costs as allowed by the Taxing Master is greater than the amount in which the respondents are liable to their solicitor. Insofar as it was submitted by the [applicant] that the respondents on the party/party taxation should be required to produce a bill in taxable form based upon the costs agreement, I reject this submission. There is nothing in the rules or the authorities governing issues of taxation that warrants such an approach. There is nothing in the costs agreement that suggests that the amounts that could properly be claimed by the respondents’ solicitor for solicitor/client costs were, or were likely to be, less than any amount that might be recoverable for party/party costs. Indeed, in his letter of 17 August 2005, the respondents’ solicitor noted that the costs of the appeal before Balmford J and the Court of Appeal, when taxed, would be likely to indemnify the respondents for only 60% to 70% of their actual costs.[31]
[31]Ibid [15] (emphasis added).
The judge then said:
As an alternative argument, the appellant contended that I should examine individual items in the bill and compare them with the amounts payable under the costs agreement. Specifically, I was referred to amounts in the bill for facsimile transmission (outgoing) and the receipt of facsimile transmissions. The items claimed and allowed in the bill (pursuant to the Supreme Court Scale) were $33 and $34 for each transmission and receipt. Under the costs agreement, outgoing facsimiles were to be charged $5 for the first page and $1 per subsequent page, and incoming facsimiles were to be charged $1 per page. It was contended by the appellant that many of the faxes would have been only a few pages and so should have been allowed at amounts significantly less than $33 or $34. The answer to this is that the principle that the respondents should recover in costs no more than their liability to their own solicitor does not mandate a line-by-line analysis of a party/party bill to see whether a particular item has been allowed at more than the same item might have been claimed under a costs agreement. The indemnity principle is ‘not to be applied rigidly’. It is to be applied ‘flexibly and reasonably’.[32] The very fact that the costs are calculated differently will lead, from time to time, to the possibility of different amounts being allowed in respect of the same matter. The shortfall involved in ordering party/party costs rather than solicitor/client costs is not to be exacerbated further by reducing individual amounts below the party/party scale merely because the particular way in which a costs agreement provides for the calculation of those costs produces an item from time to time that is costed at an amount less than the same would be costed on a party/party basis. It is to be remembered that the scale in the Rules only contains 48 items and therefore some steps that might be taken by a solicitor do not receive any allowance under the scale. There may be many reasons why a solicitor would agree to charge for some items referred to in the scale at an amount lower than the scale where he or she will also be charging the client in respect of amounts not mentioned in the scale. Provided that the client has a liability to the solicitor for an amount equal to or greater than the party/party bill, the indemnity principle is not necessarily infringed. In this case, having considered the appellant’s arguments, I do not find that the indemnity principle has been infringed.[33]
[32]See Commonwealth Bank of Australia v Hattersley (2001) 51 NSWLR 333, 340 [26]; Dyktnyski v BHP Titanium Minerals Pty Ltd [2004] 60 NSWLR 203, 220 [100]; and Wentworth v Rogers (2006) 66 NSWLR 474, 486 [45]. But cf Wentworth, 510 [161].
[33]Ibid [16] (emphasis added).
As to the procedural fairness limb of review ground 1, the judge concluded that the applicant’s complaint (that he was denied procedural fairness by the respondents’ refusal to produce the retainer letters before the Taxing Master) no longer had any force, because those letters had been produced to him (the judge) on the review. The judge continued:
For the reasons given above, the other complaint made by the appellant under this heading that ‘the Court cannot be satisfied the total amount of $39,105.20 allowed did not exceed the respondents’ actual liability to their lawyers’ cannot be upheld. It is not for the respondents on this review to prove that the amount of party/party costs ordered in their favour does not exceed their actual liability for costs. There is no reason to suppose that the respondents’ actual liability for costs is less than the amount of the party/party bill as taxed. Further, the effect of the letters which form Exhibit 1 (the so-called retainer letters) is that the solicitor/client costs chargeable under the costs agreement will exceed the amount recoverable on a party/party basis. Additionally, there is nothing to suggest an intention by the respondents’ solicitor to waive any entitlement he might have to be paid party/party costs should the respondents obtain such an order in their favour. The tenor of the correspondence is that whilst the respondents’ solicitor was doing as much as he could to reduce the costs of the proceedings in the Supreme Court, costs would be chargeable on the basis that they were recoverable from the appellant.[34]
[34]Ibid [17] (emphasis added).
In a footnote to the last sentence, the judge referred to the following correspondence as examples:
(a) The statement in the letter of 10 June 2006 that:
‘If, as expected, the further appeal is dismissed and you obtain a cost order against Mr Kuek (which is ultimately recovered) then I would expect that you would be refunded at least 80% (if not all) of those funds.’; and
(b) The statement in the letter of 17 August 2005 that:
‘Those costs would then need to be taxed (together with the costs of the initial appeal) and you would, in all likelihood, obtain an award for approximately 60-70% of the costs that I would ordinarily charge you (however, as with the Magistrates’ Court proceeding, I anticipate that I would usually reduce my rates, having regard to the amount in dispute and also having regard to the ultimate outcome).’
The judge concluded that review ground 1 was not made out, and then went on to reject each of the remaining grounds of review. It is not necessary to set out his reasoning on those grounds.
Leave to appeal
The parties consented to the Court hearing and determining the appeal instanter in the event that leave was granted. The applicant’s counsel conceded in oral argument that the applicant required leave to appeal. That concession was correct; see Kowal v Zoccoli.[35]
[35](2002) 4 VR 399, 400 [5].
Applicant’s submissions
The applicant’s proposed notice of appeal contains 19 grounds. As the grounds overlap, it is unnecessary to set them all out. In oral submissions, the applicant’s counsel stated that, in essence, the matters the applicant sought to raise were covered by grounds 1 and 2. Those grounds allege that:
(1)Having ruled, contrary to the specific decision of the Taxing Master, that: ‘the retainer letters had the capacity to bear upon the amount of the appellants’ liability pursuant to the party/party orders for costs made against him’ and ordering production of the retainer letters the learned Judge erred in failing to remit the matter for a fresh taxation to be conducted pursuant to SCR 63.57(7)(c).
(2)Further, and/or in the alternative to Paragraph 1, the learned Judge failed to give weight to relevant considerations when arriving at his decision to not remit the matter for a fresh taxation to be conducted.
In developing these grounds, counsel emphasised that the applicant’s primary submission (both before the Taxing Master and the judge) had always been that the indemnity principle had been breached, and to that end the applicant sought production of relevant documents in order to demonstrate that the respondents were seeking to recover costs from the applicant in a sum greater than their liability to their own lawyers. Counsel submitted that the judge - having correctly held that it was appropriate to require production of the retainer letters as they were relevant to the alleged breach of the indemnity principle - erred by failing to follow the issue through. In the circumstances of the late production of the retainer letters, which meant the applicant had no prior opportunity to consider them and make informed objections to the bill based upon the retainer letters, including being unable to recalculate the bill, the judge should have remitted the matter for a fresh review in light of the documents and the actual charge to the respondents. This would have allowed the applicant time to consider the position. At one point, and as a secondary position, counsel said that the judge could have undertaken the required analysis himself. However, in either case there should have been evidence as to what the respondents had actually paid their lawyers.
Counsel submitted that, in the absence of such evidence, the judge’s ultimate conclusion was speculative, in the sense that there was no basis for the judge to conclude that the respondents’ liability to their lawyers exceeded the party/party bill. In the circumstances, the matter should have been remitted to the Taxing Master. Accordingly, counsel sought the orders referred to at [4] above.
Respondents’ submissions
Counsel submitted that leave to appeal should be refused as the judge’s decision was neither wrong nor attended by sufficient doubt to justify leave. And even if the decision were wrong, the applicant would suffer no substantial injustice if the decision were allowed to stand. That was so because the question of substantial injustice depended on all the circumstances, and in this case there was no ground for contending that the amount allowed on the party/party bill exceeded the amount of the respondents’ liability to their solicitor. Further, the decision was made in the exercise of a discretion and, in the absence of any error of principle, this Court should not intervene.
More particularly, counsel submitted that while the retainer letters were the focus of the proceeding before the Taxing Master from the outset (in the sense that the letters related to the applicant’s argument about the indemnity principle) the applicant’s counsel never, either before the Taxing Master or the judge, sought production of the solicitor’s bill sent to the respondents or paid by them, in order to obtain proof of how much the respondents had actually paid their lawyers. As to that, counsel for the respondents submitted that the applicant had identified no authority (and the respondents were unaware of any such authority) that required the respondents to prove the amount they had paid their lawyers, or to prove that their liability to their lawyers was equal to or greater than the amount of the party/party costs claimed. He submitted that the authorities suggested the contrary, in this regard referring to Johnson Tiles Pty Ltd v Esso Aust Pty Ltd (No 2).[36] In the present case, he submitted, there was no cap on costs, or any uncommercial or pro bono arrangement such that it could be said that the respondents were not liable to pay their lawyers. It followed that the judge was correct to conclude that there was no breach of the indemnity principle.
[36][2003] VSC 212, [123].
Further, counsel submitted that under r 63.57(7) the judge had a broad discretion to exercise all of the Taxing Master’s powers and discretions, and the applicant’s counsel did not submit to the judge that he should not himself exercise such discretions, nor did he submit that the matter should be remitted to the Taxing Master for a fresh taxation, nor that if the judge were to exercise the discretions himself the matter ought be adjourned to enable the applicant to prepare submissions predicated on the alleged significance of the retainer letters. In effect, counsel left the matter to be decided by the judge on the material before him.
Decision
The applicant’s primary submission both before the Taxing Master and the judge was that the respondents were seeking to recover on the party/party taxation an amount greater than their liability to their lawyers. In this regard, it is useful to commence with first principles concerning party/party costs and the indemnity principle. A convenient starting point is the following well known passage in the judgment of Cozens-Hardy MR in Gundry v Sainsbury:[37]
What are party and party costs? They are not a complete indemnity, but they are only given in the character of an indemnity. I cannot do better than read the opinion expressed by Bramwell B in Harold v Smith:[38] ‘Costs as between party and party are given by the law as an indemnity to the person entitled to them; they are not imposed as a punishment on the party who pays them, nor given as a bonus to the party who receives them. Therefore, if the extent of the damnification can be found out, the extent to which costs ought to be allowed is also ascertained.’
[37][1910] 1 KB 645, 649.
[38]5 H. & N. 381, 385.
Hence, as Professor Dal Pont states in Law of Costs:[39]
[39]G E Dal Pont, Law of Costs, (2nd ed, 2009), [7.10] (references omitted).
If a successful party is not liable to meet his or her own lawyer’s costs, there is no basis upon which the indemnity rule is to operate. The compensatory aim of the indemnity rule has no function to play in such a case, and a costs order against the unsuccessful party would enrich the successful party by the amount of any such payment, which is inconsistent with the basis of the indemnity rule. So an agreement under which a litigant is absolved from paying lawyer-client costs ousts the litigant’s ability to recover costs from an adversary against whom a costs order is made.
After citing numerous authorities, a footnote to the last sentence in the quote above states:
For this reason, disclosure of the terms of the retainer agreement between the receiving party and his or her lawyer is important for the purposes of taxation, for it determines the extent to which the receiving party need be indemnified.
Further, Professor Dal Pont states:[40]
… as the indemnity rule dictates that the existence and scope of the receiving party’s duty to pay his or her own solicitors is central to the ability to recover costs, the paying party will be keen to investigate the scope of that duty by reference to the retainer, which may otherwise be privileged.
[40]Ibid [18.23] (references omitted).
Cases on the indemnity principle have generally arisen in circumstances where the paying party under a costs order has alleged that:
(a)the receiving party is not liable to pay his or her own lawyer at all;[41] or
(b) although the receiving party is liable to pay his or her own lawyer, the prospect of actual payment is remote;[42] or
(c) the receiving party’s lawyer is acting pro bono;[43] or
(d)the receiving party’s legal fees will be indemnified, or have been paid, by a third party.[44]
In the case relied on by the respondents, Johnson Tiles Pty Ltd v Esso Aust Pty Ltd (No 2),[45] Gillard J stated that ‘the indemnity principle has not been applied to deny a successful litigant costs in cases where it was not established that the successful litigant would not have to pay costs under any circumstances’. His Honour was there referring to the situation in Adams v London Improved Motor Coach Builders Ltd[46] where the plaintiff was successful in an action for wrongful dismissal and was awarded costs. It was argued that the plaintiff was not entitled to recover under the costs order, as his trade union had retained the solicitors and would pay their fees. The English Court of Appeal rejected the argument, on the basis that the plaintiff’s liability to pay the solicitors was not excluded merely because the union also undertook to pay the fees. The Court held that it was necessary for the defendant ‘to prove that there was a bargain, either between the union and the solicitors, or between the plaintiff and the solicitors, that under no circumstances was the plaintiff to be liable for costs.’ As the defendant failed to prove such an agreement, the plaintiff was entitled to recover his costs from the defendant.
[41]Ibid [7.10].
[42]Ibid [7.11]-[7.14].
[43]Ibid [7.15].
[44]Ibid [7.16]-[7.17].
[45][2003] VSC 212, [123].
[46][1921] 1 KB 495.
The common thread running through these cases is the proposition that the receiving party cannot recover costs from the paying party in circumstances where the receiving party is not liable to his or her own lawyers. That is logically so because a party cannot seek indemnification where there is no loss. In the present case, the applicant does not claim that the respondents have no liability to pay their lawyers. Rather, he says that the extent of the liability is limited because of the special arrangement whereby the lawyers agreed to act for a reduced fee. As to this type of case, in Wentworth v Rogers Basten JA stated:[47]
The principle does not apply only to the case in which the party has no financial obligation at all to his or her lawyer. It must also operate in the case where the lawyer has agreed to appear at a reduced fee, below that which might, in the ordinary course, be recoverable …
[47](2006) 66 NSWLR 474, 498 [103].
In his reasons, the judge below referred to Wentworth and plainly appreciated how the applicant was putting his case. The judge concluded, correctly, that the disclosure and retainer letters sought by the applicant were relevant to the identification of the extent of the respondents’ liability to their lawyers, and thus bore on the applicant’s ultimate contention as to breach of the indemnity principle. Accordingly, and in circumstances in which there was reason to do so, he ordered the respondents to produce the letters and costs agreement to the applicant. That was done on the basis that it was not for the respondents to simply assert that they were liable to their lawyers for more than the amount claimed on the party/party taxation. Rather, the question of whether the respondents were seeking to recover more than they were entitled to fell to be determined by the Court, having regard to the evidence adduced on the taxation relevant to ascertainment of ‘the extent of the damnification’.
As mentioned above, the judge considered that his order for production of documents remedied the applicant’s complaint that he was denied procedural fairness before the Taxing Master. In short, the judge’s reasoning must have been that, following production of the documents, the applicant and the Court were apprised of all relevant material, hence he (the judge) could complete the taxation on that basis. In so concluding, the judge did not address the applicant’s primary submission that the review before the Taxing Master had miscarried in a fundamental way (so as to effectively deny him a fair opportunity on that review) and therefore ought be remitted to the Taxing Master for rehearing.
True it is that the applicant’s counsel received and gave some consideration to the documents produced, and addressed submissions to the judge on the documents. Further, counsel did not expressly submit to the judge that he could not himself exercise the Taxing Master’s discretions, nor that if the judge were to do so the matter should be adjourned to enable the applicant to make further submissions on the basis of the retainer letters or otherwise consider how to put the case in light of them. However, I reject the respondents’ submission that the applicant’s counsel effectively invited the judge to reconsider the matter on the material before him. On a fair reading of the submissions, counsel never abandoned his fundamental objection that the taxation had so miscarried that the review should be re-done by the Taxing Master. Counsel noted that (a) recalculations had not been done, (b) such recalculations would take time, and (c) in the first instance the respondents should do such recalculations by bringing in a bill in taxable form based on the costs agreement. In my view, the judge’s firm attempt to persuade counsel that he could re-do the taxation himself led to counsel taking a deferential approach by which he indicated that it was ultimately a matter for the judge to determine whether he thought it was appropriate to re-do the taxation himself (as opposed to remitting it to the Taxing Master). But even in that context, counsel reiterated that he had already explained why it was not possible to deal with the matter immediately.
Ultimately, the judge purported to deal with the case on the basis of the indemnity principle, but without the applicant as the paying party having a sufficient opportunity to reflect on the material produced and consider how to proceed in the case. The applicant might, for example, have wished to give consideration to seeking production of further documents such as any bill rendered to the respondents. In this respect it is to be noted that the 10 June 2006 letter referred to accounts that had been rendered. There was no proper reason why the respondents should not have been required to produce the accounts in order to aid the Court in producing a taxation in accordance with law.
The judge stated in his reasons that the indemnity principle would not be infringed ‘provided that the client has a liability to the solicitor for an amount equal to or greater than the party/party bill’. Having posed the issue in those terms, he stated that having examined the retainer letters, the party/party bill and the signed costs agreement, he was unable to conclude that the total of the party/party costs as allowed by the Taxing Master was greater than the amount in which the respondents are liable to their solicitor. In effect, the judge purported to re-exercise the Taxing Master’s discretion to decide whether the applicant’s argument about the indemnity principle had merit, but he did so without ascertaining, and in ignorance of, the amount of the respondents’ liability to their lawyers.
On the contrary, he made a number of speculative findings. For example, he found that there was ‘nothing in the costs agreement that suggests that the amounts that could properly be claimed by the respondents’ solicitor for solicitor/client costs were, or were likely to be, less than any amount that might be recoverable for party/party costs’. In this regard, he relied on a statement in the respondents’ solicitor’s letter of 17 August 2005 that the costs of the appeal before Balmford J and the Court of Appeal, when taxed, ‘would be likely to indemnify the respondents for only 60% to 70% of their actual costs’. Later, the judge said that ‘there is no reason to suppose that the respondents’ actual liability for costs is less than the amount of the party/party bill as taxed’. He also concluded that the effect of the retainer letters was ‘that the solicitor/client costs chargeable under the costs agreement will exceed the amount recoverable on a party/party basis’.
In my view, none of these matters relied on by the judge, considered alone or in combination, established that the respondents’ liability to their lawyers was in an amount equal to or greater than the amount allowed by the Taxing Master on the party/party bill. As ground 12 in the proposed notice of appeal states, there was insufficient evidence to enable the judge to make such a finding. The solicitor’s expression of opinion in the letters was merely that. By accepting it at face value, the judge effectively allowed the respondents’ solicitor to decide whether the indemnity principle had been breached, rather than the Court determining the matter on proper materials. There was sufficient in the retainer letters referred to to indicate that the respondents’ lawyers would charge, and had charged, reduced fees, indeed that the solicitors were charging on a basis considered appropriate for a Magistrates’ Court case. Thus, a real issue arose as to whether the respondents’ liability to their lawyers exceeded the party/party costs claimed.
It is thus apparent that the judge erred in fundamental ways. First, he did not give proper consideration to the applicant’s submission that the review before the Taxing Master had miscarried so fundamentally that the fair and appropriate disposition was to remit the matter. In that way the applicant would be restored to the position he should have been in, with the right to a review before a judge preserved.[48] Secondly, by not remitting, the judge denied the applicant appropriate time to consider the documents produced and the appropriate further conduct of the matter. Thirdly, as a result, the judge did not have before him proper materials on which he could determine the issues. This led to findings unsupported by the evidence.
[48]See Garde-Wilson v Legal Services Board (2008) 19 VR 398, 418 [116]-[117].
The material before this Court does not enable the determination of whether the respondents have breached the indemnity principle.
In my view, the appropriate course is to remit the review to the Costs Judge. That is where the fundamental error occurred, or commenced, and it is only appropriate that the applicant be put in the position of his review being dealt with in accordance with law by the Costs Judge. In that way he retains the right to review before a judge.[49] Moreover, the Costs Judge is in the best position to deal with the matter. To that end the matter ought be remitted to the Costs Judge for rehearing of the review in accordance with law. Of course, the parties will not be limited to the present evidence, and there is to be borne in mind the broad powers of the Costs Judge to require the production of such documents as are necessary to do justice between the parties on the taxation. As Taylor LJ said in Goldman v Hesper,[50] (albeit in the different context where production of documents was resisted on the basis of privilege), on the rare occasion when a problem arises:
[T]he taxing officer has the duty of being fair to both parties: on the one hand, to maintain privilege so far as possible and not disclose the contents of a privileged document to the paying party unnecessarily; on the other hand, he has to see that that party is treated fairly and given a proper opportunity to raise a bona fide challenge.
[49]See Garde-Wilson v Legal Services Board (2008) 19 VR 398, 418, [116]-[117]
[50]Ibid.
Finally, I would observe that the view expressed in the Taxing Master’s reasons – to the effect that the course proposed by the applicant will lead to the taxation of two different bills with additional delay, expense and inconvenience – is a floodgates type argument which is no answer to a taxing officer’s fundamental duty to conduct each taxation on its own merits in accordance with law. In this case, the relevant legal principle is that the respondents have no entitlement to recover party/party costs in excess of their liability to their lawyers. This type of issue will not often arise because, in the ordinary case, party/party costs fall well short of the receiving party’s actual liability to its lawyers. But, as I have noted, here the material is sufficient to suggest that the position may be otherwise. It follows that the taxing officer must be satisfied that, as a question of fact, the party/party costs do not exceed the respondents’ liability to their lawyers. Both the Taxing Master and the judge seemed to assume that the consequence of such a factual exercise would be the (inconvenient) step of requiring the respondents to produce a solicitor/client bill, and that there was nothing in the authorities to require a solicitor/client bill. However, it does not follow that the factual question posed can only be determined by reference to a solicitor/client bill. It may be readily apparent on the face of the lawyers’ accounts that the receiving party has actually paid its lawyers more than the amount of the party/party bill. It is unnecessary to say anything further about the different ways in which a taxing officer may achieve satisfaction as to such a question of fact. That will no doubt be explored by the parties on the rehearing.
Conclusion
I would grant the application for leave to appeal and order that the appeal be treated as heard and determined instanter and allowed, the orders of the judge set aside and in lieu thereof it be ordered that the Taxing Master’s orders of 8 February 2008 and 29 October 2008 be set aside and the proceeding remitted to the Costs Judge for a fresh hearing and determination of the review, commenced by notice dated 24 October 2007, in accordance with law.
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