Seal And Seal v Malaugh Holdings (No 2) Pty Ltd And Ors (No 2) - [2008] SASC 223

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
SEAL AND SEAL v MALAUGH HOLDINGS (NO 2) PTY LTD AND ORS (No 2)
[2008] SASC 223
Reasons of Judge Withers a Master of the Supreme Court
23 July 2008
PROCEDURE - COSTS - TAXATION
Costs - rulings on indemnity caps - short form bill process.
Pickering v Smoothpool (No 6) (2001) 217 LSJS 178; General of Berne Insurance Co v Jardine Reinsurance Management Ltd & Ors [1998] 2 All ER 301; Amendola & Anor v Olma Master Rice, 22 December 2005, District Court Judgment No 176 of 2005; Law of Costs Dal Pont (2003), considered.

SEAL AND SEAL v MALAUGH HOLDINGS (NO 2) PTY LTD AND ORS (No 2)
[2008] SASC 223

JUDGE WITHERS. This matter relates to an adjudication of costs. The substantive action was an appeal against a decision of a District Court Judge. That appeal was dismissed by order of the Full Court on 6 November 2007. The appellants were ordered to pay the respondents’ costs of the appeal. No part of the proceedings in this Court was excluded from the ambit of that costs order. An earlier application by the appellants for a stay of execution of the judgment of the District Court Judge had been allowed by order made on 8 August 2007. Item 3 of that order was to the effect that the costs of that application were to follow the outcome of the appeal to the Full Court.
Following the order of the Full Court the respondents filed and served a short form bill of costs on 7 January 2008 – FDN 21. The appellants’ response to the short form bill of costs was filed and served on 17 January 2008 – FDN 22. In that response the appellants agreed some categories of items and disputed others. No items were agreed in part. As in all short form bills the items claimed were grouped into cost categories with no or few particulars. Accordingly, on 24 January 2008 the respondents filed a schedule of agreed amounts from the short form bill and on 25 January 2008 an interim allocatur was issued for the total of those agreed amounts.
By interlocutory application filed 24 January 2008 the respondents sought a preliminary assessment of costs and orders as to the adjudication of costs as may be appropriate. That application was made pursuant to SCR 271.
The application first came before me on 8 February 2008 when counsel for each party appeared. I noted that an interim allocatur had been issued and directions were given for the respondents to file and serve a long form bill of costs within 14 days, for a Notice of Dispute to be filed within a further 14 days, for there to be a conference and inspection of the documents in support of the bill, and the matter was adjourned for further directions.
A long form schedule of costs was filed on 19 March 2008. This form was somewhat different from the usual in that it included items in the bill which were described as “colour coded to indicate agreed items, and the figures in the right hand column indicate the category of the agreed item”. These were items from the short form bill that the respondent asserted had been agreed by the appellants and in respect of which the interim allocatur had already issued.
The appellants’ response to the long form bill was filed on 5 May 2008. By its response the appellants sought to dispute some of those items that were indicated as having been earlier agreed. Insofar as those items had been earlier agreed the appellants sought that agreement be revoked – see, for example, appellants’ response numbered 20, 26, 45 and 46. There are 21 such items out of the 69 allegedly agreed in the short form bill process.
The long form schedule was listed for adjudication on 8 May 2008. On that day the adjudication proceeded to item 208 with some matters being left for further consideration. The adjudication was adjourned to 26 May 2008. On that occasion the adjudication continued but some items were deferred. The solicitor for the appellants indicated that it was intended that the appellants would issue an interlocutory application seeking rulings on matters of principle before the adjudication was continued.
On 4 June 2008 the appellants issued an interlocutory application – FDN 31 – in which they sought the following orders:
1.…
2.That the agreement indicated by the Appellants in their response to the Short Form Bill of Costs dated 7 January 2008 be set aside.
3.In the alternative that the Interim Allocatur issued in this matter be set aside.
4.That the Respondent be directed to Amend its Long Form Bill of Costs so that the amount claimed by the Respondent for each specific item of chargeable work be limited in an amount which it paid to its solicitors.
5.That the Respondent provide to the solicitors for the Appellants evidence of the amounts of costs actually paid to its solicitors in respect of costs of this action.
6.That there be a declaration that the Appellants have overpaid the Respondent and are therefore entitled to repayment of such overpayment.
That application was supported by an affidavit of the solicitor for the appellants. In that affidavit he attested he had admitted various items in the short form bill. He asserted in paragraph 9 that when he agreed “the various amounts on the Short Form Bill of Costs as being payable, I did not have and had no way of ascertaining what specific item was proposed by the Respondent to be allocated – on the subsequent Long Form Bill of Costs – to those amounts agreed”. Complaint was made that the respondents had used their own discretion thereafter to allocate the items from the short form bill that were agreed and those that remained for adjudication. However some of those items which were recorded as agreed were now asserted not to be recoverable on a party/party basis. It was argued that they had been wrongly included in the short form bill.
6R 271(3) provides in relation to a short form bill of costs that:
(3)The claimant must, at the request of the respondent, produce for inspection by the respondent all documents on which the claimant proposes to rely if the claim proceeds to adjudication.
The solicitor for the appellants is therefore wrong when he asserted that he had no way of ascertaining what items were proposed by the respondents to be allocated to the short form amount. He had the right to inspect the respondents’ documents to be used in support of the claim for costs prior to responding to the short form bill. Further, the short form bill of costs identifies items by date period and other description as to pages and time, such that a reasonable identification of those items or many of them ought to have been possible. No inspection occurred.
In any event the appellants now complain that the respondents had included in the short form bill of costs matters which were solicitor/client in character and not recoverable on a party/party basis. Additionally there was duplication of items claimed. Accordingly their agreement through their solicitor to those items should be set aside in all the circumstances. It was asserted that the appellants had unintentionally agreed or undertaken to pay costs which on later examination were demonstrated to be not recoverable on a party/party basis.
A further point was raised by the affidavit in that it was asserted that in the long form bill of costs the respondents had claimed more for some individual items than they had actually paid to their solicitors for that item of work and that such a claim was not open to them on the adjudication.
A further affidavit in support was filed on 5 June 2008 enclosing a copy of the invoices issued by the solicitors for the respondent. These were the accounts to the clients for the period and the work to which the party/party costs order applies.
On 5 June 2008 the parties sought a time for argument which was fixed for 30 June 2008. An outline of submissions was filed on behalf of the appellants on 26 June 2008 and the respondents on 27 June 2008.
Items 2 and 3 of the interlocutory application address the same issue, namely the setting aside of the appellants’ response to the short form bill or interim allocatur. It is effectively an application to set aside an order of the Court which falls within 6R 242 and 6R 279. Pursuant to 6R 279 an allocatur is equivalent to a judgment.
The interim allocatur was effectively issued by consent. Such an order can be set aside if it is subsequently established that there was not in fact proper consent given. To the extent that such a consent order might amount to a contract the Court may set it aside in the event that any grounds exist that might enable a contract to be set aside, such as misrepresentation or mistake. The appellants claim that the consent given was obtained by the short form bill of costs containing items that did not fall within the ambit of party/party costs and that there was in the long form bill a misallocation of items agreed.
From the long form bill it is apparent that the appellants now wish to challenge 21 of the 69 items said to be agreed by the response to the short form bill. The objections range from those items being properly solicitor/client (approximately 8) or a duplication of other costs already claimed (approximately 7). It was suggested there was no documentary support for two of the items. Another objection was that an item was not related to the appeal process.
The short form bill procedure under the 2006 Rules very closely follows the procedure that applied under the 1987 Rules. In the matter of Pickering v Smoothpool (No 6) (2001) 217 LSJS 178, Gray J said at [9]:
Pursuant to this Rule [101A.02 of the 1987 Rules] the plaintiffs served a short form bill of costs (“the short form bill”). The bill was prepared as required in accordance with form 37. That form provides that the information be presented by category of work referrable to periods of time. The work undertaken is not set out in a chronological item by item listing. The short form bill procedure is designed to encourage and facilitate an expeditious and economic resolution to claims for costs. The procedure seeks to avoid the costs and delays associated with the preparation of a bill of costs in taxable form. Any claim for costs can only be assessed broadly.
At [30] his Honour said, referring to the appropriateness of lodging a bill in taxable form in the event that a broad resolution was not obtained:
There are sound reasons for requiring that a bill in taxable form as prescribed by the Rules and practice direction 15 be lodged and served. The party against whom the taxation proceeds has no knowledge of much of the work the subject of the taxation. That party is entitled as a matter of procedural fairness to be given full particulars of the claim.
Finally, at [35], his Honour said:
… The short form bill procedure is designed to avoid the delay and expense involved in the preparation of a bill in taxable form. A short form bill is of a different character to a bill in taxable form. It is not a bill lodged for taxation as required by Rule 101.9.
In that case his Honour found that the Master did not have jurisdiction to make an order for lump sum costs on an interim basis until such time as a bill of costs in taxable form had been submitted.
However, his Honour makes it clear in the decision that the short form bill is a process designed to facilitate an early and inexpensive resolution of costs issues between the parties. There is an obligation on the party preparing the short form bill of costs to ensure that it complies with the criteria set by the costs order. For example, where there is an order for party/party costs then the short form bill must not include within it solicitor/client costs items. There is also an obligation on that party to ensure that there is no duplication of items claimed such that, for example, eight letters might be claimed where three of those letters simply duplicate another three of the remaining five letters. Similarly there is an obligation on a party agreeing amounts claimed in a short form bill to satisfy itself by the inspection of supporting documents that their agreement is informed.
Where the costs issue overall is not resolved on the short form bill process then it is appropriate that an interim allocatur be issued for the amount offered by the paying party. In the event that an adjudication involving an examination of the detailed costs claim is required then where the paying party asserts that the short form bill included items that did not fall within the ambit of the Court order and that they had not been agreed then, in my view, those concerns as a matter of procedural fairness ought to be addressed by requiring the party with the benefit of the costs order to provide particulars of those items in dispute for a ruling to be made on them. In the event that the challenges prove to be unsuccessful, or largely unsuccessful, then the extra costs of that process would ordinarily be borne by the challenging party. However, the important outcome would be to afford to the paying party procedural fairness to ensure that the short form bill process has not miscarried. In my view where the issue of concern is one that could reasonably have been identified by the paying party on an inspection of the supporting documents before agreement then it will be too late on the adjudication of the long form bill to agitate that particular objection.
I therefore intend to proceed to adjudicate items 20, 26, 45, 46, 63, 89, 105, 114, 130, 132, 158, 172, 257, 258, 259, 260, 304, 320, 444, 490 and 491 in the usual manner in the adjudication of costs. The costs associated with this part of the application and the adjudication of these items will be reserved to the conclusion of the adjudication.
In my view it is not yet appropriate to order that the interim allocatur be set aside. The Court is empowered to make appropriate orders to amend the amount payable by way of party/party costs – see 6R 274(5). Any order should await the finalization of the adjudication process.
The next part of the interlocutory application is paragraph 4 wherein the appellants seek the following orders:
4.That the Respondent be directed to Amend its Long Form Bill of Costs so that the amount claimed by the Respondent for each specific item of chargeable work be limited in an amount which it paid to its solicitors.
The appellants also sought an order that the respondents provide evidence of the amount of costs actually paid. My understanding is that this evidence has been provided. The accounts from the respondents’ solicitors to the respondents are exhibited in Document 33a. There are two accounts, one dated 17 September 2007 and the other dated 7 November 2007. It appears from an examination of those accounts that the practitioners worked on a time basis with fees being charged at the rate of $240.00 per hour or part thereof. That arrangement is also an assertion in the respondents’ outline of argument – FDN 35.
The argument on this issue was that by reason of the indemnity rule and in particular having regard to the authority of General of Berne Insurance Co v Jardine Reinsurance Management Ltd and Others [1998] 2 All ER 301, there is an obligation on the party seeking costs to identify in the bill submitted for adjudication the amount actually charged by its solicitor or counsel for each item in respect of which a party/party cost is now sought to be recovered. It is argued that the cap imposed by the indemnity rule is to be applied on an item by item basis rather than on a global basis.
At paragraph 7.8 of Dal Pont, Law of Costs, 2003, the learned author says:
[7.8] The object of requiring an unsuccessful party to pay the costs of the successful party is to provide some indemnity to the successful party for the loss incurred in being required to spend money in vindicating or upholding his or her rights in court. A leading statement of the theory behind the indemnity rule is found in the judgment of Branwell B in Harold v Smith, who said [157 ER 1229 at 1231]:
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. Of course, I do not say that there are not exceptional cases in which certain arbitrary rules of taxation have being laid down, but as a general rule costs are an indemnity, and the principle is this, find out the damnification, and then you find out the costs which should be allowed.
The essence of his Lordship’s statement that the aim of awarding costs is compensatory, not punitive, remains. Costs are compensatory in that they are awarded to indemnify the successful party against the expense to which he or she has been put by reason of the legal proceedings. It follows that the indemnity rule may well ‘instil in a party contemplating commencing, or defending, litigation a sober realisation of the potential financial expense involved’. Thus each party will carefully assess the strength of his or her claim in the knowledge that failure in respect of that claim will likely result in a double costs liability: his or her own costs as well as the costs of his or her opponent.
The argument between the parties in this case was whether or not the cap imposed by the indemnity rule should be a global cap relating to the total amount of the invoices rendered by the solicitor to his client, or whether individual items of work should be capped on an individual basis. Thus a telephone call that might be charged on time at $24.00 in the solicitor’s invoice may attract a scale cost of $27.00 but by reason of the application of the cap no more than $24.00 could be recovered.
In this case there are no aspects of the work subject to the costs order that need to be excluded. Accordingly, it is unnecessary to examine the actual accounts to the client to ensure that either costs payable by the respondents to the appellants or costs in respect of which the respondents do not have the benefit of a costs order are not inadvertently included. If such costs were included then they would need to be deducted from the solicitor’s own accounts to the client and the cap reduced.
The decision in the Berne matter was extensively reviewed by Master Rice of the District Court of South Australia in Reasons for Decision (No 2) in a matter of Amendola & Anor v Olma, District Court Judgment No 176 of 2005 in Action No 730 of 2001. In his reasons for decision delivered on 22 December 2005 after an extensive review of the authorities, the learned Master concluded at [103] as follows:
The defendant says on the basis of Berne’s case the itemised client accounts should be produced and the individual items analysed. In that instance each item becomes the “reason” of the amount claimed. The plaintiffs reject this. In my view the Berne’s case is authority for the following:
1.Whether or not there is a costs agreement, the indemnity principle applies.
2.In some cases (in the exercise of the Court’s discretion) it will be appropriate to apply the indemnity principle not just on a global basis but to the specifically agreed rates and in some instances on an item by item basis.
3.In determining the quantum of the indemnity (the global cap) it is necessary to take out of the plaintiff’s account those charges where the client obtained no order for costs or where costs are not payable or on some other appropriate basis.

At [104] the learned Master said:
Berne’s case is not authority, as suggested, for the proposition that proper practice on every taxation requires that each item in the Bill is to be compared with each item in the account rendered to and payable by the client so that each cost item in the Bill is allowed at the lesser of the fee agreement rate or the Bill.
The learned Master further concluded at [126]:
In my view the plaintiff’s position is correct as a matter of principle namely that the indemnity principle is satisfied if the amount allowed on taxation does not exceed the quantum of costs paid or payable by the client for work performed and properly claimable pursuant to the costs order in pursuing the action. In assessing the total costs payable for the purposes of the indemnity principle and the global cap account cannot be taken for costs paid or payable for work done outside the costs order of the Court.
I respectfully agree with that analysis. There may be cases where it is appropriate to consider more closely the invoices issued by the solicitor. One such case may be where the charges are for amounts or at rates that appear to be unreasonably high such that any agreement pursuant to which they are charged might well falter on a challenge by the client. In those circumstances the indemnity cap might be reduced. Other circumstances may occur where the adjudicating officer considers it appropriate to take that course in the interests of justice. However, in my view, there are no circumstances in this matter that would justify that approach. No good purpose would be served by requiring the adjudication to proceed on an item by item comparison with the amount charged by the solicitor on a time basis to the client.
I note that this adjudication has proceeded to date without there being any suggestion that this item by item approach was appropriate. After reflection counsel for the respondents confined his claim for that item by item examination to those items that were yet to be taxed. Such an approach is not warranted. It is inconsistent with the practice generally adopted in this Court. The taxing officer retains the discretion and power to tax a bill of costs on an item by item comparison having regard to individual items in the account of the solicitor but would not ordinarily do so unless the interests of justice mandated that course.
For the foregoing reasons I decline to make the order sought in paragraph 4 of the interlocutory application.
I will now list the matter to continue the adjudication. I note that a global cap is set by the total amount of the two solicitors’ invoices to which I have earlier made reference. The indemnity principle will be applied if relevant.
I reserve the costs in relation to this application for rulings.