The Smart Company Pty Ltd v Yeoman Pty Ltd (No 2) - [2008] SASC 354

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
THE SMART COMPANY PTY LTD v YEOMAN PTY LTD (No 2)
[2008] SASC 354
Reasons of Judge Lunn a Master of the Supreme Court
15 December 2008
PROCEDURE
Adjudication of costs - default allocatur obtained by defendant under 6R 273(4) on failure of plaintiff to file notice of dispute to itemised Schedule of costs - application by plaintiff to set aside allocatur - defendant had filed itemised Schedule without obtaining direction under 6R 271(6) that claim for costs proceed to detailed adjudication - held defendant's filing of the itemised Schedule was irregular - defendant gave no warning to plaintiff that it was applying for the default allocatur - allocatur set aside under 6R 242.

THE SMART COMPANY PTY LTD v YEOMAN PTY LTD (No 2)
[2008] SASC 354
Reasons on the plaintiff’s application to set aside a default allocatur.

JUDGE LUNN: On 27 June 2008 I ordered that the plaintiff pay to the defendant its costs of the proceedings. On about 31 July 2008 the defendant’s solicitors served a short form Claim for costs on the plaintiff’s solicitors. (That Claim was not filed at Court until 16 September 2008, but nothing turns on this). On 28 August 2008 the plaintiff’s solicitors filed and served a response to the Claim, putting a substantial part of it in issue.
The defendant did not make any application under 6R 271(6) for a preliminary assessment, but on 17 September it filed and served an itemised Schedule of its costs purportedly invoking 6R 273. The plaintiff did not respond to that document within 14 days. On 9 October 2008 the defendant’s solicitors procured, and had issued, an allocatur under 6R 273(4) for $26,018.59 (being the amount of the costs claimed in the itemised Schedule), in default of the plaintiff having filed any notice of dispute to that itemised Schedule. On 15 October the plaintiff filed a notice of dispute under 6R 273(2), but the defendant responded by saying that it had already obtained its allocatur.
On 24 October the plaintiff’s solicitors wrote to the defendant’s solicitors pointing out that no direction had been made under 6R 271(6) for the defendant’s claim for costs to proceed to a detailed adjudication and asserting that the allocatur was improperly obtained. They invited the defendant’s solicitors to consent to the setting aside of the allocatur, but on 31 October the defendant’s solicitors refused to so consent and maintained the validity of the allocatur.
On 6 November the plaintiff took out an application to set aside the allocatur. It was supported by an affidavit of the plaintiff’s solicitor setting out the history of the matter, but giving no explanation as to why a notice of dispute had not been filed within 14 days. On 17 November the plaintiff filed a further application under 6R 12 seeking to set aside the defendant’s itemised Schedule filed on 17 September, but in view of the other conclusions which I have reached it is not necessary for me to deal with that application.
The procedures laid down by Part 3 of Chapter 12 of the Supreme Court Civil Rules 2006 for an adjudication of costs are substantially different from those in RR 101 and 101A of the repealed 1987 Rules. The relevant current Rules in Part 3 are 6RR 271, 272 and 273:
Part 3 – Adjudication upon Costs
271Initiation of proceeding for adjudication upon costs
(1)A person (the claimant) who claims to be entitled to costs from another person (the respondent) that are liable to adjudication under an order of the Court or these rules, must file in the Court a claim for the costs prepared in an approved form.
(2)The claim must include –
(a)     a notice in the approved form; and
(b)a general description of how the claim is made up including a statement of all counsel fees and other disbursements.
(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.
(4)within 28 days after service of the claim on the respondent, the respondent must respond to the claim by filing a notice in the Court –
(a)     admitting the claim in full; or
(b)     admitting the claim to an extent stated in the response; or
(c)     rejecting the claim in its entirety,
(and if the respondent fails to respond as required by this subrule, the respondent will be taken to have admitted the claim in full).
(5)The Court will, on administrative request, make an order for payment of costs to the extent they are admitted or presumed to be admitted under subrule (4).
(6)If the claim is not admitted in full, either party may apply to the Court for a preliminary assessment of the issues in dispute and, on such an application, the Court may exercise any one or more of the following powers –
(a)determine the basis on which costs are to be awarded and give any directions that may be necessary or desirable to arrive at a proper award of costs on the relevant basis;
(b)resolve issues in dispute between the parties or give directions for resolving such issues by mediation, arbitration or reference to an expert for report;
(c)make such orders for costs as may be appropriately be made without proceeding to detailed adjudication of the costs;
(d)order that the claim for costs proceed in whole or part to detailed adjudication.
271 – Adjudication of costs when right to adjudicate arises under some other law
(1)If a person (the applicant) seeks an adjudication of costs under the Legal Practitioners Act 1981 or some other law, the applicant may, by letter to the Registrar, apply to the Registrar for adjudication.
(2)The letter must –
(a)be accompanied by the account or accounts issued for the costs to which the application relates; and
(b)a statement of the extent (if any) to which the applicant accepts the costs as fair and reasonable.
(3)The Registrar will refer the application to the Court constituted of Master for preliminary assessment.
(4)On a preliminary assessment, the Court may exercise one or more of the following powers –
(a)resolve issues in dispute between the parties or give directions for resolving such issues by mediation, arbitration or reference to an expert for report;
(b)make such orders for the payment of costs or the repayment of costs overpaid as may appropriately be made without proceeding to detailed adjudication of the costs;
(c)order that the claim for costs proceed in whole or part to detailed adjudication.
273 – Preparation of schedule in cases where details adjudication ordered
(1)In a case where the Court orders that a claim for costs proceed in whole or part to detailed adjudication, the party claiming to be entitled to the costs (the claimant) must –
(a)prepare an itemised schedule of the costs in an approved form; and
(b)file it in the Registry and serve a copy on the party alleged to be liable to the costs (the respondent).
(2)Within 14 days after service of the schedule, the respondent must file in the Registry a response –
(a)identifying each disputed item; and
(b)stating the ground of the dispute.
(3)The Court may allow an undisputed item of costs with inquiry.
(4)If the respondent fails to file any response in accordance with sub-rule (2) the Court may, on an administrative request, make an order for payment of the costs claimed in the itemised schedule.
Unlike R 101.09 of the repealed 1987 Rules, 6RR 271 and 272 do not give the party seeking the quantification of its costs a right to file an itemised Schedule of costs and to proceed to an adjudication (taxation) of those costs. 6R 271(6) and 272(4) interpose a preliminary hearing by the Court between the conclusion of the short form Claim (short form bill) procedure and any service of an itemised Schedule (Bill of Costs). This was a deliberate innovation in the 2006 Rules to enable the Court better to monitor how the adjudication process was to proceed and to control the delays and substantial expense involved in it. Under 6RR 271(6) and 272(4) the Court has a judicial discretion to direct what path the adjudication process is to follow. It is not for one party, or all parties, to dictate to the Court what that path will be.
The significance and role of the new 6R 271(6) was considered by the Full Court in Catto v Hampton, 22 August 2008, Judgment No [2008] SASC 231, unreported where White J, with whom the other members of the Court concurred, said:
The Regime for Adjudication of Costs
Part 3 of Ch 12 of the 2006 Rules contains the regime for an adjudication of costs. A claimant must file in the Court a claim for costs prepared in an approved form (R 271(1)) and the respondent must file an answering notice indicating the extent to which the claim is admitted or disputed (R 271(4)). Rule 271(6) provides that the Court may determine preliminary issues arising in relation to an adjudication:
…..
It can be seen that under R 271 the Court may determine the basis upon which the costs are to be awarded and may give appropriate directions to facilitate the adjudication. The Court can also order that the claim for costs proceed in whole or in part to a detailed adjudication. Thus R 271(6) contemplates a step which precedes the detailed adjudication (or quantification) of the costs.
Also at [21] White J doubted that there could be a dispensation granted from compliance with 6RR 278(1)-(4) as they were necessary steps leading to a review of an adjudication by a Justice. This suggests that all of the steps laid down by Part 3 are interrelated and need to be taken to effect an adjudication of costs under it.
In Baronglow Pty Ltd v Thomas (No 7) (2008) LSJS 251 I held that parties did not have the right, either unilaterally or collectively, to waive compliance with 6R 271(1)-(4) and require the Court to proceed immediately to a full adjudication of the costs on an itemised Schedule of costs. Although subr (1) is in terms of “must” and subr (6) is in terms of “may”, I consider on similar grounds that parties do not have a right, either unilaterally or collectively, to omit the preliminary assessment laid down by subr (6) and to proceed directly to the filing of an itemised Schedule of costs under 6R 273(1). If the parties had such a right, it would override the Court’s power in this context under 6R 116 to manage litigation. It does not mean that the Court will necessarily insist on steps which may involve unnecessary delay and unwarranted expense, but they can only be circumvented by an order of the Court on an application for dispensation from the rule under 6R 117(2)(a).
The new regime in Part 3 for the adjudication of costs is an extension of the Court’s policy in recent years to manage increasing aspects of the litigation process: Kenny v State of SA (1987) 46 SASR 268; Remm Construction (SA) Pty Ltd v Allco Newsteel Pty Ltd (1991) 56 SASR 515. Under the repealed RR 101 and 101A of the 1987 Rules the enormous cost of preparing and taxing of bills of costs, which was often quite out of proportion to the amount at stake, had become notorious. 6RR 271(6) and 272(4) enable the Court at the appropriate time to explore whether there are other options available for the quantification of costs which would be more expeditious and economic for the particular case. It is not for the parties, unilaterally or collectively, to ignore the rules and to set up their own procedures: Norris v McNair (1992) 167 LSJS 389.
Counsel for the defendant cited Baronglow Pty Ltd v Willing & Thomas, Perry J, 21 September 2006, Judgment No [2006] SASC 291. That concerned a taxation under the repealed RR 101 and 101A which has no bearing on the very different wording of Part 3 of the new Rules.
The opening words of 6R 273(1) “in a case where the Court orders that a claim for costs proceed in whole or part to detailed adjudication” clearly refer to 6RR 271(6)(d) and 272(4)(c) and make orders under those subparagraphs of the earlier rules conditions precedent to the right to lodge itemised Schedules of costs for adjudication. Part 3 is a code on the procedure for the Court to adjudicate upon costs and there is no right for a party to lodge an itemised Schedule for adjudication other than pursuant to Part 3. Accordingly, the itemised Schedule lodged by the defendant on 17 September was unauthorised by the Rules and hence irregular. It was not an itemised Schedule for the purposes of 6R 273(4) under which the default allocatur was obtained.
The contentions of the defendant to uphold the allocatur were based on the plaintiff by its conduct having waived its right to compliance with 6R 271(6) or having acquiesced in the defendant having proceeded straight to an adjudication under 6R 273 without a preliminary assessment. On the view which I have taken of Part 3 it was not open to the parties to have acted other than in accordance with subr (6). Hence no waiver or acquiescence can operate against the plaintiff.
The plaintiff’s counsel submitted that the allocatur of 15 October 2008 was a judgment. I am not sure whether 6R 279 has this effect on default allocaturs issued under 6R 273(4) or whether it is confined to where there have been provisional costs orders made after an adjudication. In any event, it is of no practical significance. If it is not a judgment, it is an order of the Court and is thereby a “judgment” under the expanded definition of that term in 6R4. Under 6R 242(2) or the inherent jurisdiction of the Court an allocatur under 6R 273(4) can be varied or set aside if the justice of the case so requires.
The defendant gave no warning to the plaintiff of its intention to seek a default allocatur under 6R 273(4). Even if 6R 273(2) applied, the delay was not great.
The notice of dispute filed on 15 October discloses that there are substantial matters raised for determination as to the defendant’s entitlement to the whole of the costs claimed. There is a significant part of the costs which were not disputed. Setting aside the default allocatur will not prevent the defendant from either obtaining an allocatur under 6R 271(5) for the costs admitted in the response to the short form Claim or from applying to me on the preliminary assessment for an interim allocatur to issue for costs which are not the subject of the dispute.
The authorities on setting aside default judgments where no notice was given of the intention to do so are not entirely clear on the point: Murray Villa Pty Ltd v Nitschke Earthmovers Pty Ltd (1989) 153 LSJS 451; NGW Pty Ltd v Swanson, Full Court, 4 November 1993, [1993] SASC 4257. However, they are at least to the effect that it is a significant factor to be taken into account where there has been an irregularity in the procedures leading to obtaining the default judgment. In exercising the discretion under 6R 242 the irregularity in having served the itemised Schedule without a direction to do so being given on a preliminary assessment, and the failure to give notice of the intention to seek the default judgment, are sufficient to make it in the interests of justice that this default allocatur should be set aside in its entirety.
I will hear the parties on Friday 19 December 2008 at 2.15 pm on the costs of the applications and the other orders to be made.