Lawcover Insurance Pty Ltd v Muriniti and Newell

[2018] NSWSC 558

Supreme Court

New South Wales

Medium Neutral Citation:	Lawcover Insurance Pty Ltd v Muriniti and Newell [2018] NSWSC 558
Hearing dates:	18 April 2018
Decision date:	03 May 2018
Before:	Sackar J
Decision:	See para [42]-[43]
Catchwords:	COSTS – appropriate principles and considerations – indemnity costs – lump sum or gross costs order – whether indemnity costs or lump sum costs order should be made – appropriate discount to lump sum or gross costs order
Legislation Cited:	Civil Procedure Act 2005 (NSW)
Cases Cited:	Ann Ross v John William Padget [2016] NSWSC 1851 Cultus Petroleum v OMV Australia [1999] NSWSC 435 Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 Hamod v The State of New South Wales [2011] NSWCA 375 Harrison v Schipp (2002) 54 NSWLR 738 Seller v Jones [2014] NSWCA 19
Category:	Costs
Parties:	Lawcover Insurance Pty Ltd (First Applicant) Leonardo Carlo Muriniti (First Respondent/Defendant) Robert Duane Newell (Second Respondent/Defendant)
Representation:	Counsel: A Zahra (Plaintiff) R D Newell (Defendants)   Solicitors: Sparke Helmore Lawyers (Plaintiff) L. C. Muriniti & Associates (Defendants)
File Number(s):	2017/193095

Judgment

1. I gave judgment in this matter in Lawcover’s favour on 16 November 2017. On 15 December I made final orders requiring the Defendants to pay Lawcover’s costs of the proceedings and permitting Lawcover to make an application for indemnity costs or costs on a lump sum basis within 28 days of the entry of the final orders.

2. Lawcover filed a motion on 12 January 2018 seeking orders that the costs of the proceedings be paid by the Defendants in a fixed lump sum and on an indemnity basis ($395,522.43) or in the alternative on the standard basis ($366,141.36) and that its costs of the motion also be paid by the Defendants in a fixed lump sum on the standard basis ($15,588.00).

3. In support of the motion Lawcover seeks to rely on an affidavit of Mr John Coorey dated 12 January 2018 and an expert report of Mr Ross Nicholas dated 6 February 2018. As a result of these reports Lawcover now seeks revised amounts of $377,628.96 on an indemnity basis or in the alternative $308,857.56 on a standard basis. The Defendants oppose an order for indemnity costs and a lump sum approach and rely upon an affidavit of Mr Muriniti of 4 April 2018.

Legal Principles

Indemnity Costs

4. The Court has a very wide discretion in relation to an award of costs. It can award indemnity costs pursuant to section 98(1)(c) of the Civil Procedure Act 2005 (NSW) (the Act).

5. An award for indemnity costs may be made in a variety of circumstances. Usually the applicant for such an order has to identify some relevant delinquency on the part of an unsuccessful party such as unreasonably pursuing or defending proceedings, maintaining them for some ulterior purpose or some wilful disregard of known facts or the clearly established law, as examples: Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 401 per Woodward J; Cultus Petroleum v OMV Australia [1999] NSWSC 435 per Santow J; Seller v Jones [2014] NSWCA 19 at [58] per McColl JA.

Lump Sum Costs Order

6. A Court may order payment of costs in a specified lump sum instead of assessed costs pursuant to section 98(4)(c) of the Act. Again the discretion is wide and it may be made whenever the circumstances warrant it: Harrison v Schipp (2002) 54 NSWLR 738 at [21] per Giles JA.

7. Beazley JA (as her Honour then was) in Hamod v The State of New South Wales [2011] NSWCA 375, commented that an important reason in any particular case why the discretion in section 98(4) may be exercised is where the assessment of costs would be protracted and expensive at [813]. A further fact to be taken into account is if it appears that a party obliged to pay the costs would not be able to meet the liability of the order likely to result from the assessment at [813].

8. The length and/or complexity of a case are also factors. In addition this case is perhaps somewhat exceptional. I note in passing that although the Defendants here are legal practitioners they are in effect litigants in person and are in a contest with their professional indemnity insurer.

9. Beazley JA also pointed out the costs ordered should be based on an informed assessment of the actual costs having regard to the information before the Court. The approach to be taken in arriving at the estimate must be logical, fair and reasonable. The exercise will necessarily be impressionistic: Hamod v The State of New South Wales [2011] NSWCA 375 at [820].

10. Importantly finality to the litigation is essential in everyone’s interest including the Court. In many cases that factor alone will weigh heavily on whether a Court should exercise a discretion to order a lump sum assessment. If it assesses a lump sum the Court has routinely applied a discount to the lump sum figure so as to allow for contingencies: Hamodv The State of New South Wales [2011] NSWCA 375 at [820]; Ann Ross v John William Padget [2016] NSWSC 1851 at [16] and [21].

Consideration

11. The Plaintiff in support of an award of indemnity costs submits that the Defendants knew or ought to have known that the relief claimed by Lawcover would most likely be granted whilst their Cross-Summons had no real prospect of success and was likely doomed to failure. Further it is submitted by Lawcover that the Defendants ought to have been aware that their Cross-Summons would very substantially increase the volume of material placed before the Court, lengthen the hearing and unnecessarily increase the parties’ costs and the use of the Court’s resources.

12. Further it is submitted they had numerous opportunities to resile from their entrenched position before Lawcover commenced the proceedings and could have approached Lawcover to accede to the relief claimed in the Summons prior to the hearing but failed to do so.

13. In response the Defendants in their written outline of costs submit at [14] that the Plaintiff is merely being repetitious. The Defendants submit there is no basis for characterising their behaviour as unreasonable. Nor they submit was their position taken out of the failure to understand the essential purport of the Policy. In their written outline on costs however the Defendants make the following submission:

It is plain beyond contest that the Defendants did understand the policy but did not intend to be drawn into a trap constructed to refer the matter to an independent expert and thereby support a claim that they had done so voluntarily. The position is and always was that the Plaintiff could not set up the well understood deeming regime without having provided proper reasons for the decision said to incept that regime …

…

[15] It is material that the so called independent arbiter of choice of the independent expert was the President of the Law Society in circumstances that Lawcover is a wholly owned subsidiary of the Law Society.

14. This passage in the Defendant’s submissions places yet again at the forefront their assertion of some sort of conspiracy or “trap” which was put at the trial and which explains why they did not trust and invoke the QC procedure. In particular due to some corruption of the process or conflict of interest the Defendants submitted at trial they were rightly and reasonably distrustful of invoking the QC Clause. I rejected that notion at the trial. I dealt with this issue at [178]-[180] of my judgment. They appear to me to be maintaining that same stance on the question of costs.

15. That stance in my view was not and is not based on reality. The Defendants’ thinking in that regard dominated every aspect of the litigation even in my view to the point of distorting their construction of the Lawcover policy. In my view they acted wholly unreasonably in the conduct of the litigation and in bringing the Cross Claim which in turn involved dense factual assertions of bad faith which failed.

16. The so called “trap” along with the bad faith allegations against Lawcover not only unnecessarily delayed the proceedings but had the effect of squandering precious resources.

17. As the Plaintiffs point out in their submission various opportunities were afforded the Defendants to invoke the QC Clause so as to avoid litigation. I made findings of fact in this regard in my judgment at [82]-[96].

18. In my view this is an entirely appropriate case for the award of indemnity costs.

19. On the question of whether it is appropriate to order a lump sum in my view given the state of modern litigation, a lump sum order ought reasonably be adverted to whenever it possibly can. Litigation is by reason of its labour intensive nature expensive. It is clearly always desirable to finalise litigation as soon as can be. The question of costs frequently becomes a tail wagging the dog in that it dominates the litigation often at the expense of issues in a case.

20. There is no doubt this litigation ought to be brought to an end sooner rather than later. I regard it as highly likely that the Defendants would carry their entrenched and unreasonable attitude over into a dispute on the question of costs. In addition there may be significant doubt they will be able to pay any of these costs although there is no evidence before the Court as to their resources.

21. The evidence before the Court on the Plaintiff’s side is that of Mr John Coorey Solicitor and an expert Mr Ross Nicholas, and on the other Mr Leonardo Muriniti a solicitor and one of the parties.

22. Mr Coorey is a highly experienced litigation solicitor. He sets out the history and issues in the litigation and the various charges made. In his affidavit of 12 January 2018 Mr Coorey also sets out the various invoices rendered to Lawcover which included both fees of Sparke Helmore and those of Counsel. He also identifies the persons from Sparke Helmore who worked on the matter including his own and others’ hourly rates. He also describes the tasks in broad terms attended to by his firm and others. He has practised as a litigation solicitor for over 32 years, 22 of those years as a partner. His estimate is that from an initial review of the main papers a costs assessor is likely to charge somewhere between $3,200 and $9,600 to prepare an assessment. If a more detailed review is required then somewhere between $6,400 and $14,400 would be relevant. These fees are based on hourly rates which in his experience could vary from $400 to $600 an hour. In his view an assessment could easily cost somewhere between $16,000 and $38,400 inclusive of GST. The whole assessment process would likely in his view cost at least $20,000 exclusive of GST and perhaps more.

23. Further in his experience he would expect that the costs assessment would take approximately six to eight months to prepare. He accepts of course that he is not an expert costs assessor.

24. In addition there is the evidence of Mr Ross Nicholas who is undoubtedly qualified as a legal costs expert.

25. Mr Nicholas’ report indicates that he was admitted to practice in 1983 and practised in a private practice until 1988. From 1988 until 1991 he practised with Mahlab Costing as a legal costing consultant and was their New South Wales Manager. Between 1991 and 1998 he was the costing manager at Pattison Hardman Pty Ltd which again is a cost consultant firm. During that time he lectured on legal costs to solicitors at the College of Law.

26. From 1998 to date he has run his own business, CostsPlus Pty Ltd, a legal costs consulting firm. He is currently the holder of an unrestricted practicing certificate. For the purpose of his report he was supplied with a letter of instruction, together with the pleadings, the invoices and my judgment.

27. Mr Nicholas is of the view that it would cost somewhere between $12,000 to $15,000 to draw an application for assessment and an itemised bill of costs. This is based on a percentage of 8 to 10% of solicitors’ costs. There would likely be a charge out rate of $250 per hour plus GST.

28. After the preparation of the assessment and Bill of Costs there would be ongoing costs including $1,000 to $3,000 for the drawing of responses and objections. $4,000 lodgement fee on application for assessment being 1% of the amount claimed and $3,000 to $5,000 for costs assessors’ fees. $1,000 to $3,000 for drawing an application for review if Lawcover decided to review the costs assessment.

29. There would be a $275 fixed lodgement fee on application for review and a further $3,000 to $5,000 would be incurred for the review panel’s fees. The precise basis for these calculations is set out in Mr Nicholas’ report in paragraphs [2] and [3].

30. Mr Nicholas expresses the view that to draw, file and serve the initial documentation would take somewhere between 2.5 to 4 months. The making of the determination by the costs assessor could take another six months.

31. If the issuing of certificates of determination and making an application for review were to occur that would take somewhere between 1.5 and 2.5 months. In addition the making of the determination by a costs review panel would normally take 3 to 5 months. What I have set out is a summary of his analysis in paragraph 4 of his report.

32. Mr Nicholas then reviewed the costs charged by various practitioners. His review is detailed and explicit. In addition he independently reviewed Counsel’s fees and expressed various views as to the likely outcome on an assessment. Having undertaken a very detailed assessment he ultimately formed the view that if Lawcover obtained the benefit of a costs order on an indemnity basis it would likely recover around $377,628.96. Contrary to the submission made by Mr Newell on this application (T7/20-30) in my view Mr Nicholas obviously reviewed the invoices against the issues litigated and he had my judgment. I should add no submission at all was made on the costs of the motion ($15,588).

33. If it had the benefit of a costs order on an ordinary basis it would recover $308,857.46 (see paragraphs 5.26 and 5.27 of his Report).

34. Mr Nicholas also did a computation of interest which he regarded as payable on the respective amounts (paragraphs 6.1 and 6.2 of his Report). Including interest the revised amounts therefore would be $418,932.13 on an indemnity basis or $333,952.13 on an ordinary basis.

35. Mr Muriniti prepared an affidavit of 4 April 2018. He is the principal of L.C. Muriniti and Associates. He has practised as a solicitor for 30 years and was for some 10 years legal advisor to the NRMA legal services.

36. Mr Muriniti expresses the view that the filing fee in a case such as this in relation to a costs assessment would be approximately 1% of the costs claimed and therefore $3,600. He also estimates that a costs assessor’s costs in the matter would be approximately $2,000 to $3,000. He then expresses various views as to discount figures that might be applied to assessments. His evidence is directed solely to the issue of whether a lump sum order is appropriate. He expresses no view on Mr Nicholas’ opinion or the particular costs incurred here, nor did he comment on Mr Coorey’s affidavit.

37. In opposing a lump sum costs order the Defendants submit that there is no credible indication as to why the case should be assessed on a lump sum basis. They submit there is no unusual feature to justify the order and they contest the amount of time taken up with issues associated with the Cross-Claim.

38. Further Mr Muriniti says he would not personally involve himself in the assessment of the costs and has routinely had a Ms Chris Davitt prepare assessments relatively inexpensively from time to time. Ms Davitt was not asked I presume or was unavailable to put evidence before the Court in this particular case.

39. Given Mr Nicholas’ expertise and the thoroughness with which he approached the task I am satisfied that his views ought to be accepted. That is I accept his views as to the likely costs and time involved in both preparing the initial costs assessment and a possible review if any. Mr Nicholas was clearly of the view that costs at least of the order that he indicated were entirely appropriate given the issues canvassed in the proceedings. I should indicate that that accords with my own view, namely that costs approaching those indicated by Mr Nicholas were entirely appropriately charged by Sparke Helmore and Counsel given the nature of the trial and the issues thrown up by the proceedings. I also accept the evidence of Mr Coorey. I note neither was cross examined.

40. Having reviewed all of the evidence it seems to me a lump sum assessment is the preferable course. There is ample evidence before the Court for that assessment to be undertaken including importantly an expert report, in respect of which there was no objection or cross examination. Further, I consider given the attitude of the Defendants to date a traditional assessment is likely to be protracted and expensive and their respective resources are problematical.

41. Because the assessment in the lump sum context is a global assessment albeit here with the benefit of a comprehensive and thorough critique from an expert, Courts have nonetheless in such circumstances applied a discount. There is no particular formula to be applied but it may be said that in general terms a discount of somewhere around 20 to 30% is frequently applied on an impressionistic basis to allow for contingencies and in recognition of the very nature of the assessment.

42. In my view as I have indicated previously there should be an award of indemnity costs. Interest although calculated by Mr Nicholas is not sought by Lawcover. In my assessment however I should apply a discount of 25% to the costs claimed.

43. I would order therefore the Defendant pay the costs assessed on an indemnity basis, and in particular the amount of $377,628.96 less 25%. I would also order the Defendant to pay the costs of this motion assessed at $15,588 to which I would also apply a discount of 25%.

44. I would invite the parties to bring in short minutes of order to reflect these reasons as soon as is practicable.

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Decision last updated: 03 May 2018