Lukic v de Luca-Leonard (No 3)

[2017] NSWSC 1074

Supreme Court

New South Wales

Medium Neutral Citation:	Lukic v de Luca-Leonard (No 3) [2017] NSWSC 1074
Hearing dates:	On the papers
Date of orders:	27 September 2017
Decision date:	27 September 2017
Jurisdiction:	Common Law
Before:	Harrison J
Decision:	(1)   Order the defendant to pay the plaintiff’s costs of and incidental to the proceedings, including those costs related to determination of the special costs dispute. (2)   Order that the costs payable in accordance with order (1) be paid on an indemnity basis.
Catchwords:	COSTS – successful plaintiff – costs follow the event – solicitor and client dispute – no reasonable basis for solicitor to defend claim by a former client for provision of itemised bill of costs – indemnity costs – defendant’s resistance to the relief claimed ill-founded
Legislation Cited:	Civil Procedure Act 2005 Legal Profession Act 2004 Legal Profession Uniform Law (NSW)
Cases Cited:	Beoco Ltd v Alfa Laval Co Ltd [1995] QB 137 Bolger v McDermott (No 2) [2013] NSWSC 1330 Capogreco v Rogerson [2016] NSWCA 61 Chaina v Alvaro Homes Pty Ltd [2008] NSWCA 353 Cirillo v Consolidated Press Property Ltd (formerly known as Citicorp Australia Limited) (No 2) [2007] FCA 179 Dias Aluminium Products Pty Ltd v Ullrich Aluminium Pty Ltd (No 2) [2005] FCA 1400 Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd [1988] FCA 202; 81 ALR 397 GAIN Capital UK Limited v Citigroup Inc (No 2) [2016] FCA 243 Hally v Dennis (1955) 95 CLR 661; [1955] HCA 41 Hansell v Director of Public Prosecutions (NSW) [2016] NSWCA 311 Knight v Clifton [1971] Ch 700 Lukic v de Luca-Leonard [2017] NSWSC 814 Lukic v de Luca-Leonard (No 2) [2017] NSWSC 841 McKeith v Royal Bank of Scotland Group PLC; Royal Bank of Scotland Group PLC v James (No 2) [2016] NSWCA 260 Peters v Peters (1907) 7 SR (NSW) 398 Qualify Me Pty Ltd v Get Qualified Australia Pty Ltd (No 2) [2016] FCA 309 Qualify Me Pty Ltd v Get Qualified Australia Pty Ltd (No 3) [2016] FCA 460 Re Wilcox; Ex parte Venture Industries (No 2) [1996] FCA 1942; (1996) 72 FCR 151 RDCW Diamond (Pty) Limited v Da Gloria [2007] NSWSC 1325 Ruddock v Vadarlis (No 2) (2001) 115 FCR 229
Category:	Costs
Parties:	Miroslavka Lukic (Plaintiff) Moya Regina de Luca-Leonard (Defendant)
Representation:	Counsel: H W M Stitt (Plaintiff) J O’Sullivan (Defendant)   Solicitors: Wilson Fox Lawyers (Plaintiff) Bruce Macdonald Lawyers (Defendant)
File Number(s):	2016/357460
Publication restriction:	Nil

Judgment

1. HIS HONOUR: I published my reasons for judgment in this matter on 23 June 2017: see Lukic v de Luca-Leonard (No 2) [2017] NSWSC 841. I did not deal with costs. Ms Lukic succeeded and now seeks both an order that her costs be paid and that they be paid on an indemnity basis.

2. Ms Lukic says that such an order is supported by the following contentions:

1. She was forced to commence proceedings to obtain information which she was clearly entitled as a client to receive from her solicitor. There was no reasonable prospect of those proceedings being unsuccessful.

2. Ms de Luca-Leonard knew from 27 February 2016 that she ought to furnish the itemised bill of costs as requested, and even agreed to provide it. She then inexplicably put Ms Lukic through the ordeal of contested litigation, knowing that Ms Lukic was suffering from a mental disability.

3. As an officer of the Court, Ms de Luca-Leonard had an obligation to conform to a higher standard of behaviour than an ordinary member of the community when involved in litigation, and she did not do so.

3. Ms Lukic seeks indemnity costs from 29 February 2016, when her solicitors wrote to Ms de Luca-Leonard requesting the itemised bill.

Principles

4. Costs are always discretionary. Section 98 of the Civil Procedure Act 2005 makes it clear that the Court has an unfettered discretion to determine by whom and to whom costs are to be paid and to what extent, including whether they are to be paid on an ordinary or indemnity basis. However, such discretion must be exercised judicially. When considering whether or not to award indemnity costs, it should be borne in mind that such an award is compensatory, not punitive.

5. The Court is to have regard to the particular circumstances of the case including the evidence advanced, the conduct of the parties and the ultimate result: see Knight v Clifton [1971] Ch 700; Hally v Dennis (1955) 95 CLR 661; [1955] HCA 41 at 664. Relevant conduct of the parties might occur in the course of the proceedings: Beoco Ltd v Alfa Laval Co Ltd [1995] QB 137. Alternatively, it may be conduct leading up to the commencement of the proceedings: Peters v Peters (1907) 7 SR (NSW) 398 at 399.

Background

6. Ms Lukic retained her present solicitors, Wilson Fox, in February 2016. That firm wrote to Ms de Luca-Leonard on 9 February 2016 requesting the client file and attaching an authority to provide it. On 29 February 2016, Wilson Fox wrote again requesting further materials not previously provided, including an itemised bill of costs.

7. On 22 March 2016, Mr Hernandez from Wilson Fox spoke with Ms de Luca-Leonard on the telephone and precisely explained the purpose for his request. Ms de Luca-Leonard did not deny the request, but merely stated that she would “look through the documents” and provide Mr Hernandez with an answer. No answer was forthcoming.

8. On 31 March 2016, Wilson Fox again wrote to Ms de Luca-Leonard seeking both the requested documents and an itemised bill of costs. Mr Hernandez once again referred her to the relevant authorities to substantiate why Ms Lukic was entitled to what she sought. He also set out the calculations of what was said to be an overpayment of costs and made an offer to accept $55,025 by way of repayment. Ms de Luca-Leonard was thereafter on notice that if he did not receive a response, proceedings would be commenced.

9. On the following day, Ms de Luca-Leonard sought the advice of counsel about these matters. In her letter to Wilson Fox, she did not deny that Ms Lukic was entitled to the materials sought. Then, on 4 April 2016, she wrote again to Wilson Fox agreeing with Ms Lukic’s position, stating:

“…it is much more likely than not that I would be ordered to provide a detailed bill in assessable form. I am presently discussing this matter both with him and with an appropriate costs expert regarding preparing the bill in question.”

10. On 5 April 2016, Ms de Luca-Leonard wrote to Wilson Fox saying, “I do believe that an itemised bill could be available to you within 35 days from now”. Then, on 8 April 2016, she wrote again to Wilson Fox indicating that an “archival recall is being undertaken”. On 4 May 2016, Ms de Luca-Leonard wrote to Wilson Fox apologising “for the delay in replying, beyond the date you requested, of 26 April 2016”. She indicated that the “files have been retrieved from archives and are voluminous”. She confirmed that an “itemised bill is expected to involve considerable time, and cost”.

11. No itemised bill was received by Ms Lukic. On 4 May 2016, Ms de Luca-Leonard wrote to Wilson Fox noting that “the itemised bill has not been completed”. She continued, saying “I wish to give you my assurances that I intend no unfairness to your client”. However, it then became apparent in this same correspondence that Ms de Luca-Leonard did not intend to provide an itemised bill without an undertaking being provided by Ms Lukic to pay any additional fees. She wrote:

“I am yet to receive your client’s answer in the nature of an undertaking concerning the fee difference or perhaps more correctly its payment once an itemisation is completed. It is with your answer to these matters an itemisation can be completed if indeed those are your instructions.”

12. The Legal Profession Act 2004 proscribed demands of that type.

13. On 27 May 2016, Wilson Fox wrote again to Ms de Luca-Leonard noting that they had made

“multiple requests for an itemised bill and complete file, specifically as requested in our correspondence to you dated 27 February 2016. It is now 4 weeks since itemised bill and complete file to be provided to us. We are yet to receive the requested documents”.

14. Wilson Fox also stated that they would not be providing any further undertaking for payment of additional fees and that Ms de Luca-Leonard had “no grounds to claim the difference between the lump sum bill and itemised bill”.

15. On 5 June 2016, Mr Hernandez put Ms de Luca-Leonard on notice that he intended to seek indemnity costs should Ms Lukic be forced to commence proceedings to obtain a copy of her file and an itemised bill. He also set out the fact that it had been over three months since the first request had been made and he listed various reasons why Ms de Luca-Leonard was not entitled to demand further payment from Ms Lukic.

16. On 8 June 2016, Mr Hernandez once again set out the legal basis why Ms Lukic was entitled to the itemised bill in detail. The letter also withdrew any offer to compromise the claim as set out in the 31 March 2016 letter.

17. On 5 April 2016, 8 April 2016, 4 May 2016 (twice), 2 June 2016 and 3 June 2016 Ms de Luca-Leonard, after having already received $75,000, demanded that Ms Lukic either pay an additional amount of $31,000 for the itemised bill, or give an undertaking to do so, notwithstanding the fact that she knew or ought to have known that it was impermissible under s 332A the Legal Profession Act for a law practice to charge for preparing or giving a bill, and that such a bill request was to be complied with within 21 days.

18. These proceedings were commenced on 29 November 2016. Ms de Luca-Leonard was ordered to provide an itemised bill of costs by me on 23 June 2017.

Ms Lukic’s submissions

19. Ms de Luca-Leonard should have known that Ms Lukic was entitled to an itemised bill of costs. It even appeared in her Costs Agreement.

20. She has delayed the process repeatedly for more than nine months, even after saying that she was obtaining counsel’s advice, or that she had retrieved the materials from storage, or that it would take her about 30 days to prepare such a bill. Those statements were either gross underestimates or misleading in the extreme. In any event, none of the assertions took Ms Lukic any closer to obtaining the itemised bill without having to commence proceedings and proceed to judgment.

21. Ms Lukic also maintains that Ms de Luca-Leonard was also aware that she was suffering from a mental disability, as Ms de Luca-Leonard had previously been closely involved with her as her solicitor in personal injury litigation. Notwithstanding that knowledge, she put Ms Lukic through unnecessary stress and expense by requiring her to litigate in order to enforce the rights that Ms de Luca-Leonard either knew or ought to have known Ms Lukic already had. That conduct is unacceptable from a solicitor and an officer of the Court.

Ms de Luca-Leonard’s submissions

22. The legal principles were not in dispute.

23. Costs should ordinarily “follow the event”. Ms Lukic’s claims for an itemised bill and provision of the solicitor’s file were advanced as concurrent claims, rather than as alternative ways of putting the same claim. Here, whilst there was one application, Ms Lukic made two discrete claims so there are two discrete events: Qualify Me Pty Ltd v Get Qualified Australia Pty Ltd (No 2) [2016] FCA 309 at [13].

24. It lies within the Court’s discretion to make a costs order that reflects the degree of success attained: Ruddock v Vadarlis (No 2) (2001) 115 FCR 229 at [11] and [15]. It will be an appropriate exercise of the Court’s discretion to deprive a party of its costs in respect of an issue which it lost at trial: Dias Aluminium Products Pty Ltd v Ullrich Aluminium Pty Ltd (No 2) [2005] FCA 1400 at [3]. Some recent examples where the Court has not awarded all of the costs where a plaintiff was only partially successful may be found in Hansell v Director of Public Prosecutions(NSW) [2016] NSWCA 311 at [12]; McKeith v Royal Bank of Scotland Group PLC; Royal Bank of Scotland Group PLC v James (No 2) [2016] NSWCA 260 at [63] and Capogreco v Rogerson [2016] NSWCA 61 at [14] - [15].

25. Ms Lukic has been partly successful in that she obtained an order for the provision of an itemised bill and partly unsuccessful in that she did not obtain an order for production of the solicitor’s file.

26. There is no proper basis for the Court to order Ms de Luca-Leonard to pay Ms Lukic’s costs on an indemnity basis. Indemnity costs are intended to compensate a party fully for costs incurred, which party and party costs could not be expected to do, where the Court forms the view that it was unreasonable for the party in whose favour the order is made to be subjected to a costs expenditure: Cirillo v Consolidated Press Property Ltd (formerly known as Citicorp Australia Limited) (No 2) [2007] FCA 179 at [4]. There must be some special circumstance or unusual feature, such as the bringing of a hopeless case, to support the making of an order for costs on an indemnity basis: GAIN Capital UK Limited v Citigroup Inc (No 2) [2016] FCA 243 at [37]. Even lengthy delays caused by a party and the associated strain on the parties may be insufficient to justify the making of an order for costs on an indemnity basis: Qualify Me Pty Ltd v Get Qualified Australia Pty Ltd (No 3) [2016] FCA 460 at [20].

27. A useful summary of the relevant principles can be found in Bolger v McDermott (No 2) [2013] NSWSC 1330 in the decision of Hallen J at [26] - [45]. The following principles may be distilled from the cases that are discussed at paragraph [38] and following. An order for indemnity costs is only warranted where:

1. an award of party/party costs is insufficient to compensate for costs unreasonably incurred due to misbehaviour of the other party such as misleading the court, conduct that has caused unreasonable delay and expense, or where there were no real prospects of success and where there has been unreasonable delay for tactical advantage: RDCW Diamond (Pty) Limited v Da Gloria [2007] NSWSC 1325 at [14];

2. there is some special or unusual feature of the case: Re Wilcox; Ex parte Venture Industries (No 2) [1996] FCA 1942; (1996) 72 FCR 151 at 152 and 153:

3. the losing party has behaved inappropriately by making false or deliberately concocted factual allegations or prevaricating in the witness box so as grossly to prolong the litigation: Chaina v Alvaro Homes Pty Ltd [2008] NSWCA 353 at [106] - [113];

4. there was no chance of success and the proceedings were wilfully maintained for a collateral purpose: Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd [1988] FCA 202; 81 ALR 397.

28. Ms de Luca-Leonard contended on the basis of these decisions that the conduct of a losing party must be extremely bad before an indemnity costs order is made, offers of compromise aside. Here there is no suggestion that Ms de Luca-Leonard misled the Court, caused unreasonable expense, ran a hopeless defence for a collateral purpose or unnecessarily prolonged the proceedings.

29. It is plain that the making of an order under section 728 of the Legal Profession Act 2004 for the provision of an itemised bill is discretionary so that Ms Lukic had no absolute, unqualified right to one and that the result of the proceedings was not a foregone conclusion: Lukic v de Luca-Leonard (No 2) [2017] NSWSC 841 at [4].

30. Ms Lukic received a lump sum bill of $74,000 on 22 April 2014: Lukic v de Luca-Leonard [2017] NSWSC 814 at [6]. However, she did not commence the proceedings until 29 November 2016. It was plainly arguable that the delay in bringing the proceedings might be a reason for the Court to decline to order provision of an itemised bill. Had Ms Lukic made her application under the Legal Profession Uniform Law, she would have been well outside the 30 day time limit imposed by s 187(2) of that Act. It appears that the Legislature has recognised the undesirability of permitting belated applications for itemised bills by the imposition of a time limit.

31. According to Ms de Luca-Leonard, Ms Lukic is inviting the Court to elevate a costs order into a form of punishment for any solicitor who resists, in good faith, a request for an itemised bill under s 332A of the 2004 Act. That provision has no time limit so that if Ms Lukic’s submissions were accepted, a client could request an itemised bill many years after provision of the services and any solicitor unsuccessfully resisting the request would become liable for indemnity costs. In the present case, Ms de Luca-Leonard has done no more than to conduct her defence in an orthodox way and with partial success. This was no more than an exercise of her right to have her side of the case heard and falls far short of conduct that would warrant an order for indemnity costs.

Consideration

32. In my opinion it was unreasonable for Ms Lukic, in whose favour my order in the principal proceedings was made, to be subjected to a costs expenditure. Ms de Luca-Leonard cites authority for the proposition that there must be some special circumstance or unusual feature, such as the bringing of a hopeless case, to support the making of an order for costs on an indemnity basis. This is such a case. Ms de Luca-Leonard’s stubborn defence of the claim for an itemised bill of costs is the equivalent of a hopeless case in my view. Her position is never explained. If she received counsel’s advice, or had some other reason to believe, that her resistance to the claim was somehow defensible, she has not provided it to me. Indeed, the very clear tone of the correspondence between Ms de Luca-Leonard and Mr Hernandez was that she was obliged to provide the itemised bill and had made arrangements to do so. She even went as far as to concede that she might be ordered to do so.

33. Ms de Luca-Leonard has been on notice of the prospect of an indemnity costs claim since 5 June 2016. She ignored that prospect at her peril.

34. It may be that one can surmise why Ms de Luca-Leonard wished to avoid the inconvenience of complying with the request. It would have involved retrieving old files and returning to a completed matter with no prospect of remuneration or compensation for the time involved to do so. That is as may be. Ms de Luca-Leonard had a professional obligation to comply with the request and has not demonstrated the existence of any reason why she should not have been ordered to do so.

35. It is not without significance in my opinion that Ms de Luca-Leonard can be seen to have changed her position as time went by. Her original concession that a bill would have to be furnished ultimately gave way to an illegitimate attempt to impose an unenforceable condition of payment of the costs of preparing the itemised bill or an undertaking that those costs would be paid. There is also a faintly discernible theme, obvious from the correspondence, that Ms Lukic should be aware that the whole exercise might be one that she regrets, if the assessed costs turn out to exceed the agreed costs. I am not prepared to agree with counsel’s submission that Ms de Luca-Leonard’s defence of the claim was conducted in good faith.

36. As the authorities to which Ms de Luca-Leonard has directed attention make clear, her defensive, not to say unduly combative, response to the litigation belied a total absence of any prospect of succeeding. The added issue concerning the production of the file maintained by her was plainly collateral and insignificant. The proceedings before me were effectively contested around the provision of an itemised bill of costs. This is not, in my opinion, a case of partial success by Ms Lukic. In any event, that distinction is more usefully directed to the limitation or restriction of the usual order that costs should follow the event, rather than to the question of whether costs should be ordered on other than an ordinary basis.

37. Finally, I am not prepared to conclude that Ms Lukic’s mental disability, as it is referred to in the submissions of her counsel, validly informs any decision I am presently required to make. That issue was never the subject of evidence that would have permitted a finding of the type contended for by Ms Lukic.

Orders

38. I consider that the following orders should be made:

1. Order the defendant to pay the plaintiff’s costs of and incidental to the proceedings, including those costs related to determination of the special costs dispute.

2. Order that the costs payable in accordance with order (1) be paid on an indemnity basis.

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Decision last updated: 27 September 2017