District Court New South Wales

• Medium Neutral Citation: Bellevarde Constructions Pty Ltd v CPC Energy Pty Ltd [2011] NSWDC 55
• Hearing dates: 11 and 12 May 2011
• Decision date: 19 May 2011
• Jurisdiction: Civil
• Before: Judge Peter Johnstone

Decision

Appeal allowed in part only

• Catchwords: COSTS ASSESSMENT - appeal from assessment by a costs assessor of party/party costs payable pursuant to court orders - whether any decisions of the costs assessor as to a matter of law were shown to be in error - whether the costs assessor had proper regard to the indemnity principle - whether the plaintiffs were denied procedural fairness - whether the costs assessor should have awarded costs of the assessment to the plaintiffs rather than to the defendant
• Legislation Cited: Civil Procedure Act 2005 and the UCPR; Legal Profession Act 2004
• Cases Cited: Brierley v Reeves t/as Kaplan Reeves & Co [2000] NSWSC 305; CSR Ltd v Eddy [2008] NSWCA 82; Diemasters Pty Limited v Meadowcorp Pty Ltd (Unreported, NSWSC, Master Macready, 16 July 2003); East West Airlines Limited v Turner [2010]NSWCA 53; EMI Records Ltd v Ian Cameron Wallace Pty Ltd [1982] 2 All ER 980; Flexible Manufacturing Systems Pty Ltd v Alter [2004] NSWSC 29; Fox v Percy [2003] HCA 22; Frumar v The Owners of Strata Plan 36957 [2006] NSWCA 278; Furber v Gray [2002] NSWSC 1144; General of Berne Insurance Co v Jardine Reinsurance Management Ltd [1998] 2 All ER 301; Gorczynski v AWM Dickinson & Son [2005] NSWSC 277; Honest Remark Pty Ltd v Allstate Explorations NL [2008] NSWSC 439; Huggard v Huggard (1902) 8 ALR 178; Larsen v Vale [1999] NSWCA 397; Latoudis v Casey (1990) 170 CLR 534; McCausland v Surfing Hardware International [2010] NSWDC 222; O'Connor v Fitti [2000] NSWSC 540; Qantas Airways Ltd v Dillingham Corp (Unreported, NSWSC, Rogers J, 14 May 1987); Randall Pty Ltd v Willoughby City Council [2009] NSWDC 118; Re Dibbs and Farrell (1941) 41 SR (NSW) 249; Richfort Pty Ltd v Baluyut (1999) 152 FLR 203; Shaw v Yarranova Pty Ltd [2011] VSCA 55; Skalkos v Assaf [2002] NSWSC 1221; Smith v Smith [1906] VLR 78; Stanley v Phillips (1966) 115 CLR 470; Turner v Pride [1999] NSWSC 850; Wentworth v Rogers [2006] NSWCA 145; Woolf v Snipe (1933) 48 CLR 677
• Category: Principal judgment
• Parties: Bellevarde Constructions Pty Ltd (First Plaintiff); John Francis Fielding (Second Plaintiff); CPC Energy Pty Ltd (Defendant)
• Representation: Mr R D Marshall of counsel with Ms Bampton of counsel (Plaintiffs); Ms J McDonald of counsel (Defendant); R BadgeryLegal Pty Ltd; CLS Legal Solicitors
• File Number(s): 2010/351240
• Publication restriction: None

Judgment

1 The plaintiffs have appealed to the District Court from an assessment of party/party costs made by a costs assessor under the Legal Profession Act 2004 (the Act).

2 The defendant became entitled to recover party/party costs from the plaintiffs as a result of orders made by the Supreme Court and the Court of Appeal of New South Wales on 14 December 2007 for the payment to it by the plaintiffs of unspecified amounts of costs, as follows:

• Einstein J, sitting in the Construction and Technology Division of the

• Supreme Court, ordered the plaintiffs to pay the defendant's costs of proceedings before him, on the ordinary basis up to 22 November 2006, and on an indemnity basis from 23 November 2006.

• Giles JA, sitting in the Court of Appeal, dismissed a Notice brought by the plaintiffs, with costs.

3 The parties were unable to agree on the amount of the party/party costs and the defendant applied for an assessment of those costs.

4 The costs assessor carried out the assessment and issued certificates of determination on 14 September 2010, together with a Statement of Reasons, by which he determined:

• that a fair and reasonable amount of costs to be paid to the defendant was $485,197.68. (This amount is made up of disbursements of $209,924.18, which are not disputed, and professional costs of $275,273.50, which are the subject of this appeal.)

• that the costs of the costs assessment be paid by the plaintiffs to the defendant in the sum of $13,796.81.

5 The plaintiffs were dissatisfied with these determinations and instituted this appeal by the filing of a Summons Commencing an Appeal on 22 October 2010 under s 384 of the Act, which provides for an appeal as of right to the District Court in respect of matters of law arising in the proceedings to determine the application for assessment.

6 The plaintiffs complain, in broad terms, that the costs assessor made errors of law in that:

he assessed the party/party costs without proper regard to the indemnity principle;

he denied the plaintiffs procedural fairness in a number of respects;

he failed to award the costs of the assessment to the plaintiffs.

7 Before turning to consider each of these grounds of appeal, I note the following agreement between the parties entered into by the parties during the course of the hearing and recorded in MFI 2:

"By consent and without admissions the Court:

1. Orders that pursuant to s 384(2) of the Legal Profession Act 2004 the amount in the certificate of determination of costs issued on 14 September 2010 in assessment No 12977 of 2008 be reduced by $36,551.00.

2. Notes the agreement of the parties that there are no further disputes between them in regard to the decision of the costs assessor for the items in the bill claimed up to and including 17 August 2005, but that otherwise the appeal under section 384 remains to be determined."

8 The parties provided written submissions in advance of the hearing that were supplemented by oral submissions made at the hearing.

9 The appeal is governed by s 384 of the Act, which provides as follows:

"384 Appeal against decision of costs assessor as to matter of law

1. A party to an application for a costs assessm ent who is dissatisfied with a decision of a costs assessor as to a matter of law arising in the proceedings to determine the application may, in accordance with the rules of the District Court, appeal to the Court against the decision .

2. After deciding the question the subject of the appeal, the District Court may, unless it affirms the costs assessor's decision:

(a) make such determination in relation to the application as, in its opinion, should have been made by the costs assessor, or

(b) remit its decision on the question to the costs assessor and order the costs assessor to re-determine the application.

3. On a re-determination of an application, fresh evidence, or evidence in addition to or in substitution for the evidence received at the original proceedings, may be given."

10 Thus, if a party to a costs assessment in respect of party/party costs payable as a result of a court order is dissatisfied with a decision of a costs assessor in respect of a discrete matter of law, there lies an appeal as of right under s 384(1). Such appeals are strict appeals, where the duty of the Court is to determine whether error has been shown in the decision being appealed and it is not the Court's task "to decide where the truth lies as between competing versions of evidence or whether some further evidence may have lead to a different conclusion": see Fox v Percy [2003] HCA 22 at [32]; see also Larsen v Vale [1999] NSWCA 397 at [17] and East West Airlines Limited v Turner [2010] NSWCA 53 at [76].

11 The proper construction of s 384(1) requires a consideration of the totality of the provisions of ss 384 and 385. In my view, these provisions as a whole create a scheme for appeals in respect of costs assessments and reviews. Section 384(1) provides for a narrow, limited avenue of appeal as of right as to a matter of law decided in the proceedings. In all other situations where a party to a costs assessment is dissatisfied, leave to appeal is required and the application is required to be brought pursuant to s 385 of the Act. The application for leave must be made to the court or tribunal that made the costs order and the appeal, if leave is granted, is to be heard in that other court or tribunal: McCausland v Surfing Hardware International [2010] NSWDC 222 at [48].

12 Accordingly in an appeal as of right under s 384(1), the Court is not concerned with the facts except to the extent that the decision is based on the facts found. It is not the purpose of the Court to ascertain whether the facts were wrongly decided, incorrect, inadequate or incomplete. The Court is not concerned with absent facts, undisclosed facts or undiscovered facts. It is not contemplated that the facts upon which the matter of law was decided will be reviewed, complemented, varied or added to. The appeal is concerned with the decision as to the matter of law. If a party wishes to introduce fresh evidence or further evidence the sections provide alternative avenues of appeal: Firstly, leave may be sought from the Court or tribunal which made the costs orders in the case of party/party costs, under s 385(2); or in the case of practitioner/client costs, from the District Court under s 385(1). If on the other hand the party is able to persuade the District Court in an appeal under s 384(1) on the material before the costs assessor, and the District Court does not affirm the decision of the costs assessor on the matter of law, two options emerge under s 384(2): the Court can determine the application itself or it may remit the decision on the matter of law to the costs assessor to re-determine the application: McCausland v Surfing Hardware International [2010] NSWDC 222 at [48].

13 Furthermore, the Court may not receive further evidence under s 384(3) if it decides to determine the matter itself. If it decides to determine the application itself it must do so on the evidence that was before the costs assessor.

14 It is only the costs assessor that can receive further or additional evidence under s 384(3) on a re-determination. This twist arises from use of the word determination in s 384(2) and the word re-determination in s 384(3): McCausland v Surfing Hardware International [2010] NSWDC 222 at [48].

15 In short, therefore, s 384(1) provides for appeals as of right from a decision of a costs assessor as to a matter of law arising in the proceedings to determine the application. Section 385 provides for other appeals by leave from a determination. An appeal under s 385, if leave is given, is by way of a new hearing, and fresh evidence or evidence in addition to or in substitution for the evidence received at the original proceedings may be given. In the case of party/party costs there is a further complication in that leave to appeal on grounds other than matters of law arising in the proceedings may only be sought from the Court which made the order for costs: See Frumar v The Owners of Strata Plan 36957 [2006] NSWCA 278. This means that a dissatisfied party may be put to an election whether to appeal to the District Court under s 384 or to another court under s 385.

16 Not only must a party who is appealing under s 384(1) establish an error of law, that party must also demonstrate that the error made justifies disturbing the assessment: Gorczynski v AWM Dickinson & Son [2005] NSWSC 277 at [22]. Thus it has been said by Associate Justice Malpass:

"The onus borne by the plaintiff is not merely to demonstrate error as to a matter of law arising in the proceedings to determine the application but also to demonstrate that any such error is material to the determination": Honest Remark Pty Ltd v Allstate Explorations NL [2008] NSWSC 439 at [24].

"...[whilst there has been an attack on the expression of the reasoning process, it has not been shown that the determination itself was erroneous and should be disturbed...The onus borne by [the plaintiffs] has not been discharged": Skalkos v Assaf [2002] NSWSC 1221 at [17] - [18].

The indemnity principle

17 The plaintiffs' first broad complaint in this appeal is that the costs assessor assessed the defendant's solicitors' costs without regard or proper regard to the indemnity principle. I pause to observe that the costs assessor did not in fact assess the costs of the defendant's solicitors. Rather he assessed the party/party costs payable by the plaintiffs to the defendant as a result of the costs orders made in its favour pursuant to s 364 of the Act: see also s 367A.

18 An understanding of the indemnity principle requires an appreciation of the distinction between party/party costs and practitioner/client costs.

19 Practitioner/client costs are the costs that the practitioner charges the client for the legal services provided: Qantas Airways Ltd v Dillingham Corp (unreported, NSWSC, Rogers J, 14 May 1987) ; Stanley v Phillips (1966) 115 CLR 470 at 478. They are governed by the law of contract, subject to legislative intervention and the inherent supervisory jurisdiction of the Supreme Court: Woolf v Snipe ( 1933) 48 CLR 677; Re Dibbs and Farrell (1941) 41 SR (NSW) 249 at 251; Richfort Pty Ltd v Baluyut (1999) 152.FLR.203 at 205.

20 Party/party costs, on the other hand, are the legal costs that one party recovers from another party in litigation as a result of an order of the court. They are, therefore, governed by the court order, and are to be assessed "on the ordinary basis" unless the court orders otherwise: UCPR r 42.2 and r 42.5. The "ordinary basis" means the basis set out in s 364(1) and (2) of the Act: s 3 of the Civil Procedure Act 2005 .

21 Party/party costs are in the nature of an indemnity of the party's practitioner/ client costs, although they will rarely amount to a full indemnity of the practitioner/client costs, because, f or example, party/party costs do not include unreasonable or unusual costs: EMI Records Ltd v Ian Cameron Wallace Pty Ltd [1982] 2 All ER 980 . Nor will they include costs incurred by an "unusually fussy, hysterical, ignorant, suspicious and vindictive'' client: Huggard v Huggard (1902) 8 ALR 178 . See also Smith v Smith [1906] VLR 78.

22 This indemnity principle means that a party cannot recover from another party more costs than he or she has paid or is liable to pay her or his own legal practitioner: General of Berne Insurance Co v Jardine Reinsurance Management Ltd [1998] 2 All ER 301 at 308. As was submitted for the plaintiffs, party/party costs are compensatory, and are not awarded to punish the losing party: Latoudis v Casey (1990) 170 CLR 534 at 563 and 567. Thus, to award a larger amount in party/party costs to a successful litigant than the amount for which she or he is liable to his or her own lawyer would be to give a profit to the successful litigant, and to penalise the unsuccessful litigant.

23 The plaintiffs contend that the costs assessor made an error of law in finding, in the assessment under appeal, that the indemnity principle had not been breached, and in so finding he misapplied or misunderstood the law.

24 The defendant contends, on the other hand, that the costs assessor understood the indemnity principle and appropriately applied it.

25 It was submitted for the plaintiffs:

"In order to decide whether the indemnity principle has been offended...a costs assessor must have evidence before him to prove what the costs applicant's liability actually is to his solicitor for doing the work for which solicitors' costs are claimed in the party-party itemised Bill."

26 It was further submitted that a costs applicant has the onus of proving that it was in fact liable for the costs claimed, and that the actual liability is only attracted when the lawyer renders an invoice in the amount claimed.

27 In my view the plaintiffs' submissions are flawed. To the extent that it was asserted that the onus of proof lies in respect of each individual item appearing in a bill of costs, in the context of determining whether the indemnity principle has been offended, is to misconceive the assessment process.

28 The assessment of costs is not a taxation on an item-by-item basis: CSR Ltd v Eddy [2008] NSWCA 82 at [4].

29 The new costs assessment scheme was introduced by the legislature in the Legal Profession Amendment (Costs Assessment) Act 1998 to replace the old taxation system, with a view to a "faster, easier and cheaper system".

30 The new costs assessment scheme is a paper driven, user (loser) pays system. The process is not a proceeding in the court: Brierley v Reeves t/as Kaplan Reeves & Co [2000] NSWSC 305 ; O'Connor v Fitti [2000] NSWSC 540 ; Furber v Gray [2002] NSWSC 1144 ; Flexible Manufacturing Systems Pty Ltd v Alter [2004] NSWSC 29 ; Diemasters Pty Limited v Meadowcorp Pty Ltd (Unreported, NSWSC, Master Macready, 16 July 2003) .

31 Thus, the costs assessment process is a statutory process that is neither wholly judicial, nor wholly adversarial, as there are strong elements of an inquisitorial nature involved. These features of the process are important to understand when evaluating decisions as to a matter of law made in the course of the assessment.

32 The costs assessor is required to assess the entirety of the costs the subject of the application: Turner v Pride [1999] NSWSC 850 , not each individual item. An application for the assessment of party/party costs is often accompanied by a bill of costs, but this is not a requirement. The regulations require only that certain particulars and other information be provided, sufficient to enable assessment. This includes such details as the relevant work performed, the period over which it was performed, the persons who did the work, including their position or status in the law practice, and the basis on which the costs have been calculated (whether on a lump sum basis, an item of work basis or an hourly rate basis). The facts relied on to justify the costs must be set out together with details as to the skill, labour and responsibility involved, the complexity, novelty or difficulty involved, the quality of the work, or any other relevant matter.

33 Nor is it accurate to suggest that the actual liability for practitioner/client costs is only attracted when the lawyer renders an invoice in the amount claimed. That liability arises from the contractual relations between the practitioner and the client: Wentworth v Rogers [2006] NSWCA 145 at [129].

34 An invoice, if and when it is rendered, serves to quantify the limit of the liability. In that situation, the amount of the indemnity available is established, and it would of course be wrong to allow to a party an amount of party/party costs that exceeded to the total of the practitioner/client costs charged in any invoice. But how the individual items going to make up the total are made up is irrelevant.

35 The particular decision of the costs assessor as to a matter of law asserted on behalf of the plaintiffs is said to arise from the following passage in his Reasons:

"I have perused the costs agreement between the costs applicant and its legal advisers. I am satisfied that the amount claimed by the costs applicant is no greater than the amount for which the costs applicant would be liable pursuant to those agreements...I find the indemnity principle has not been breached."

36 The plaintiffs contend that the costs assessor made an error of law in that there was no evidence to support his finding that the indemnity principle was not breached. This was because he had no tax invoices before him to consider.

37 Counsel for the defendant submitted that in the absence of an evidentiary foundation for doing so, the costs assessor was not obliged to investigate whether or not the indemnity principle has been offended and was entitled to proceed on the basis that a client who retains a practitioner will be liable to pay that practitioner's fees and charges. Thus it was incorrect for the plaintiffs to submit that that a costs assessor must have evidence before him to prove what a costs applicant's actual liability is to his practitioner.

38 My attention was drawn to Wentworth v Rogers [2006] NSWCA 145 and a more recent decision of the Victorian Court of Appeal in Shaw v Yarranova Pty Ltd [2011] VSCA 55. It was submitted that these decisions are authority for the proposition that in the absence of a proper evidentiary basis for doing so, a party should not be required to produce tax invoices or other documents, either to establish the clients' liability to pay costs to their solicitors, or to establish the actual costs paid (emphasis added), so as to establish a liability to pay costs to their solicitors in amounts at least as great as the amounts claimed as party/party costs. In other words, proof of the existence of a retainer for the provision of legal services, whether by direct evidence, or implied from their conduct, gives rise to a presumption that the retainer is based on a contract for the provision of legal services for a fee: Shaw v Yarranova Pty Ltd [2011] VSCA 55 at [17] and [27]:

"Once it is recognised that it will ordinarily be presumed in the case of a solicitor who acts on the record for a party that there is a retainer and that the party for whom the solicitor acts is liable for the solicitor's costs...there was nothing before the Costs Judge that made it likely that any of the material sought by the applicant would advance the contention that the indemnity principle had been displaced. The evidence did not raise the likelihood that the costs that had been paid or were to be paid were less than those that had been taxed. Beach J correctly concluded that the applicant was on a 'fishing expedition'..."

39 The flaw in the defendant's submission is that in the present assessment there was credible evidence before the costs assessor that did in fact raise the likelihood that the costs for which the defendant was liable to its solicitors were less than those that had been claimed by it in the bill of costs submitted to the costs assessor in support of the application for assessment.

40 First, the evidence before the costs assessor clearly established that tax invoices were rendered to the defendant by its solicitors.

41 This was not a case, for example, where there was a conditional costs agreement pursuant to which the costs to be charged by the solicitor were to be the costs actually recovered on a party/party basis, such that no invoices had as yet been rendered. The fact that there were invoices set the limit for the amount the defendant might recover on a party/party basis. There was no evidence before the costs assessor as to what that limit was.

42 Secondly, and importantly in the context of this assessment, was the evidence that put the costs assessor on clear notice that the plaintiffs were alleging that certain work was performed Mrs Deigan, and was performed at times when her practising certificate had been suspended, or at a time when she was employed by the client itself, and not by the solicitor.

43 The effect of this material, in my view, was to raise a serious question as to whether the defendant's liability for practitioner costs was less than the amount claimed in the bill of costs submitted to the costs assessor, thus displacing any presumption. I do not consider that he was required to investigate each individual item or to examine who performed each item of work claimed in the bill of costs. What he should have done, however, was to ensure that the total amount claimed for professional work in the bill of costs did not exceed the total amount charged in the invoices. His failure to do so resulted in a misapplication, in the assessment, of the indemnity principle. In my view, that failure amounted to an erroneous decision as to a matter of law arising in the proceedings to determine the application for assessment.

44 Having decided this question concerning the indemnity principle, the appeal is partly allowed and I do not propose to affirm the costs assessor's decision as to this matter of law. I must therefore now proceed under s 384(2) of the Act and determine whether I should make such determination in relation to the application as, in my opinion, should have been made by the costs assessor, or remit the decision on the question to the costs assessor and order the him to re-determine the application. I will invite the parties to make submissions on this question.

Procedural fairness

45 The plaintiffs' second broad complaint in this appeal is that the costs assessor denied them procedural fairness in a number of respects. Specifically, they allege four elements involving a denial of procedural fairness:

(a) The costs assessor refused to accede to the plaintiffs' request to compel production of specified documents by the defendant, its solicitors, Mrs Deigan and her related company Prudent Juris Pty Ltd.

(b) The costs assessor applied the wrong test as to which party bore the onus of proof in relation to those costs that were ordered to be paid on an indemnity basis.

(c) The costs assessor misunderstood the application of the Jones v Dunkel principle.

(d) The costs assessor fell into error in allowing any amount for costs in respect of work done by Ms Deigan before 3 November 2006, when her practising certificate was reinstated.

46 In respect of the first element, that is the failure to compel production of certain documents, the submission proceeds on the premise that the costs assessment process, being a paper driven process, lacks an essential ingredient usually found in adversarial dispute resolution, namely a power on the part of a party to compel production of documents, that power being vested only in the costs assessor, and not available to the parties as it would be in a court. All the party can do is request the costs assessor to exercise his or her production powers in a certain way.

"This limits the ability of a party to a costs assessment to test the assertions, submissions or evidence of another party..."

47 Accordingly, it was submitted, the costs assessor must act justly and responsibly, with proper regard to the impact on a party's ability or inability to promote or defend its cause. In the present case, the costs assessor's failure to compel production of documents the plaintiffs requested be produced amounted to a procedural unfairness.

48 The documents that the plaintiffs wanted produced revolved around the issues I have identified above: namely whether any of the work claimed in the bill of costs was performed by Mrs Deigan, and performed in the period during which she did not hold a practising certificate, or at any time when she was not employed by the defendant's solicitors. The documents required included employment records, tax records, invoices and receipts.

49 The power of a costs assessor to compel production of documents is part of the investigative powers conferred on a costs assessor by the statute. The exercise of that power is and must remain totally within the exercise of the costs assessor's discretion. The assessment process, as I have been at pains to point out, is not an adversarial process. Rather it is a quasi-inquisitorial process that is carried out by experienced practitioners who bring to bear their experience and knowledge to evaluate what work was reasonable and what is a fair and reasonable amount of costs for that work: see Skalkos v Assaf [2002] NSWSC 1221 at [16]. It is a matter of judgment for a costs assessor to decide how much detail or supporting material is required in any particular assessment.

50 In my view, the power given to costs assessors to require production of records is one that should be exercised sparingly, and only when considered essential by them to properly conduct the assessment, such that any failure to accede to a request by a party to exercise the power is not remediable pursuant to principles of procedural fairness. Put another way, the decision of a costs assessor whether or not to require production of particular documents is not a question with respect to a matter of law. No appeal lies, at least not pursuant to s 384 of the Act, for any failure to exercise the power.

51 A dissatisfied party is not left without a remedy. The problems associated with the procedural limitations in costs assessments have been well ventilated in decisions of the Court of Appeal which has said that the absence of relevant procedural mechanisms for allowing a hearing and determination in an appropriate manner of contested issues of fact gives rise to an implied power not to continue with the assessment of the application so as to allow the parties to have such issues determined in a court or tribunal that does have the relevant powers and processes. Alternatively, if the substance of the complaint so warrants, the party has the opportunity to seek leave to appeal under s 385 of the Act. An application for such leave is to be made to the court which made the costs orders, but if leave is obtained, the advantage of such an appeal is that it proceeds by way of a new hearing and fresh evidence, or evidence in addition to or in substitution for the evidence received by the costs assessor. Absent other considerations, a grant of leave in such a situation is generally mandated: Wentworth v Rogers [2006] NSWCA 145 at [190] - [193]. It does mean, however, that a dissatisfied party may be put to an election whether to appeal to the District Court under s 384 or to seek leave to appeal to the original court in which the underlying proceedings were commenced under s 385 of the Act. I discussed these maters in more detail in Randall Pty Ltd v Willoughby City Council [2009] NSWDC 118 and McCausland v Surfing Hardware International [2010] NSWDC 222.

52 The second element of the procedural fairness ground relied upon by the plaintiffs concerns the question of the onus of proof in respect of the costs awarded on an indemnity basis. The plaintiffs submit that the costs assessor misunderstood the question of onus where it arose and applied the wrong test.

53 It is not entirely clear why the submissions seek to categorise this element as a denial of procedural fairness rather than an erroneous decision as to a matter of law. Whatever the basis of the contention, I am not persuaded that the costs assessor either misunderstood or misapplied the onus of proof in relation to those costs that were to be assessed on an indemnity basis.

54 The basis upon which indemnity costs are to assessed is set out in UCPR r 42.5(b), which provides:

"If the court determines that costs are to be paid on an indemnity basis all costs (other than those that appear to have been unreasonably incurred or appear to have been of an unreasonable amount) are to be allowed."

55 The plaintiffs submitted that the costs assessor should have first determined, in effect as a threshold factual finding, whether or not actual attendances claimed as items in the bill of costs were proven, by the defendant, to have been performed at all, and secondly, that they were performed by a particular person. Only then did the onus shift to the plaintiffs to prove that the attendance was unreasonable, or the amount claimed was unreasonable. But the costs assessor, erroneously, placed the onus on the plaintiffs to prove these threshold facts as well as the issues of unreasonableness.

56 The plaintiffs' submissions confuse the distinction between practitioner/client costs and party/party costs, and the nature of the costs assessment process, which as I have already observed is no longer a taxation on an item by item basis. In an assessment of practitioner/client costs, if a solicitor has claimed for work and the client disputes that the work was performed, or by whom it was performed, it is for the practitioner to satisfy the costs assessor that the work was performed, or by whom it was performed. In an assessment of party/party costs on the ordinary basis, if the solicitor acting for the party entitled to costs pursuant to the court order has claimed for work and the other party disputes that the work was performed, or by whom it was performed, it is for the party claiming the costs to satisfy the costs assessor that the work was performed, or by whom it was performed. But in an assessment of party/party costs on an indemnity basis, if the solicitor acting for the party entitled to costs pursuant to the court order has claimed for work and the other party disputes that the work was performed, or by whom it was performed, it is for that other party to satisfy the costs assessor that the work was not performed, or was performed by someone other than the solicitor has claimed.

57 In the present assessment, I am not persuaded that the costs assessor either misunderstood, or misapplied these principles. Ultimately, he was not satisfied, by the plaintiffs, that any work claimed by the solicitor was either not performed, or was performed by someone other than the person the solicitor claimed performed the work.

58 There was no denial of procedural fairness, nor did the plaintiffs establish that by placing the onus on the plaintiffs in respect of the indemnity costs the costs assessor made a decision as to a matter of law arising in the proceedings. There was evidence that enabled the costs assessor to find that all the items in dispute in the bill were in fact performed. And, where he was in doubt as to the identity of the person performing the work claimed in a disputed item, he gave the benefit of that doubt to the plaintiffs and only allowed the item at the lowest charge out rate. To my mind that was an appropriate approach in the circumstances that did not amount to procedural unfairness.

59 The third element of the procedural fairness ground relied upon by the plaintiffs concerns an asserted misapplication of the principle in Jones v Dunkel. The substance of the plaintiffs' submission is that the solicitor for the defendant failed to produce certain documents pursuant to the costs assessor's directions. This failure, it is contended, led to the costs assessor making incorrect findings of fact. For example, it was submitted that the absence of file notes ought to have resulted in a finding against the solicitor because, if produced the file notes would not have been favourable, which ought to have led to the conclusion that Mrs Deigan did the work that the solicitor claimed he himself had performed, or claimed was performed by another employed lawyer.

60 In my view, the submissions do not identify any decision as to a matter of law arising in the proceedings. The costs assessor did not misapply the principle in Jones v Dunkel. Any decisions made by him regarding the non-production of documents amounted to nothing more than questions of assessment, not matters of law. Nor was there any procedural unfairness.

61 The fourth and final element of the procedural fairness ground relied upon by the plaintiffs concerns work allowed that the plaintiffs claim should not have been allowed because it was performed by Mrs Deigan prior to the reinstatement of her practising certificate on 3 November 2006, and the illegality that was alleged to have involved.

62 So far as the period prior to 17 August 2005 is concerned, the ground falls away by reason of the settlement referred to above in paragraph [7]. So far as the period after 17 August 2005 until 3 November 2006 is concerned the costs assessor conclusively found that none of the work claimed by the solicitor was performed by Mrs Deigan.

63 In my view, the submissions do not identify any decision as to a matter of law arising in the proceedings. Any decisions made by the costs assessor regarding the work performed in the period after 17 August 2005 until 3 November 2006 amounted to nothing more than questions of assessment, not matters of law. Nor was there any procedural unfairness.

64 For all the reasons set out above, the ground of appeal which relies upon claimed procedural unfairness fails .

The costs of the costs assessment

65 The plaintiffs' third broad complaint in this appeal is that the costs assessor failed to have regard to s 369(3)(c) of the Act when determining which party should pay the costs of the costs assessment, and to what extent. This was an erroneous decision as to a matter of law, and the plaintiffs should have been awarded the costs of the assessment. Secondly, the costs assessor failed to give the plaintiffs an opportunity to be further heard in relation to the costs of the costs assessment after completion of the assessment, despite an express reservation of their right to do so.

66 The first matter for consideration is whether s 369(3)(c) of the Act has any application to an assessment of party/party costs ordered by a court.

67 So far as is relevant, s 369 provides as follows:

"369 Costs of costs assessment

(1) This section applies to the costs of a costs assessment in relation to:

(a) costs to which section 317 (Effect of failure to disclose) applies, and

(b) costs to which section 364 (Assessment of costs-costs ordered by court or tribunal) applies, and

(c) costs that on assessment are reduced by 15% or more.

(2) A costs assessor is, subject to this section, to determine the costs of a costs assessment to which this section applies.

(2A) Subject to any order of or the rules of the relevant court or tribunal, the costs assessor may determine by whom and to what extent the costs of an assessment referred to in section 364 (Assessment of costs - costs ordered by court or tribunal) are payable and include the determination in the certificate issued under this section in relation to the assessment.

(3) The costs of a costs assessment to which this section applies are payable:

(a) for a costs assessment in relation to costs to which section 317 (Effect of failure to disclose) applies - by the law practice that provided the legal services concerned, or

(b) for a costs assessment in relation to costs to which section 364 (Assessment of costs - costs ordered by court or tribunal) applies - by such persons, and to such extent, as may be determined by the costs assessor, or

(c) for a costs assessment in relation to costs that on assessment are reduced by 15% or more - by the law practice that provided the legal services concerned or, if the costs assessor so determines, by such persons, and to such extent, as may be determined by the costs assessor."

68 The plaintiffs submit that s 369(3)(c) of the Act applies to the assessment of party/party costs ordered in the present appeal, because the costs assessor found that the amount claimed in the bill of costs was "reduced" by 18.5%. The defendant, on the other hand submits that the subsection does not apply to an assessment of party/party costs.

69 In my view, reading s 369 as a whole, and by reference to the totality of Division 11 (Costs Assessment) of the Act, s 369(3)(c) should properly be construed as applying only to the assessment under s 363 of practitioner/client costs and not to the assessment under s 364 of the Act of party/party costs ordered by a court or tribunal.

70 There can be no doubt that s 369(3)(b) applies only to the assessment under s 364 of the Act of party/party costs ordered by a court or tribunal, because the subsection so provides, expressly. Nor could there be any doubt that s 369(3)(c) applies to the assessment of practitioner/client costs, because the subsection refers to the "law practice" that provided the legal services. The question is whether s 369(3)(c) also applies to the assessment of party/party costs. I consider that it does not. Firstly, the structure of s 369(3) is such that because subsection (b) applies only to the assessment of party/party costs, the legislature must have intended that subsection (c) was to apply only to the assessment of practitioner/client costs. Secondly, the reference to the law practice confirms this construction. Thirdly, subsection (c) is mandatory, in the sense that if the costs of the law practice are reduced by 15% or more, the costs of the costs assessment are to be paid by the law practice. This is inconsistent with the general discretion conferred on the costs assessor in respect of an assessment of party/party costs to award such costs against such persons, and to such extent as may be determined. Finally, the use of the word "reduced" in subsection (c) confirms that it relates only to practitioner/client costs. Under s 367 of the Act the costs assessor is required to determine an application relating to a bill, that is a practitioner/client bill, by confirming the bill or by substituting a lesser amount. That may, and usually will, involve a reduction. On the other hand, there is no element of reduction in the assessment of party/party costs. Under s 367A of the Act the costs assessor is required to make a determination of the fair and reasonable amount of costs payable as a result of an order made by a court or tribunal.

71 I consider that s 36(3)(c) did not apply to the assessment the subject of this appeal and the costs assessor was not required to have regard to it.

72 It follows also that the plaintiffs did not suffer any procedural unfairness in not having been given any further opportunity to be heard.

73 For these reasons, the ground of appeal that relates to the determination of the costs of the assessment fails.

74 Even if s 369(3)(c) of the Act were to apply, I would still not allow the appeal on this third ground. The costs assessor's decision in relation to the costs of the costs assessment was a discretionary one. It did not involve a decision as to a matter of law. He in fact did take into account the 18.5% variation in the amount claimed in the bill of costs. So far as any submissions or material is to be put before a costs assessor in relation to the costs of the costs assessment, it is incumbent on the parties to put that material in their submissions in advance of the determinations and the issue of certificates. It only adds further delay and unnecessary additional cost to the assessment process to split the assessment in the way the plaintiffs submitted it should have been. There was, therefore, no procedural unfairness in the costs assessor proceeding to determine the costs of the costs assessment when and how he did. In my view, it has not been demonstrated that the determination of the costs assessor in relation to the costs of the costs assessment should be disturbed.

Disposition

75 I allow the appeal in part as to Ground 1 of the Summons, but dismiss the balance of the appeal.

76 I reserve the question of the costs of the appeal.

77 The parties are to confer and attempt to reach agreement as to the conduct of the balance of the appeal, that is whether I should make such determination in relation to the application as, in my opinion, should have been made by the costs assessor in respect of Ground 1 of the appeal, or remit the decision on that question to the costs assessor and order the him to re-determine the application.

78 If they are unable to agree on that, counsel should provide me with written submissions. Counsel should prepare a timetable for written submissions, but I give the parties leave to apply if they are unable to agree.

79 I envisage determining the balance of the appeal on the papers, in chambers. But if either party wants me to reconvene the court for further oral submissions, or evidence, they should address that in their written submissions.

80 The written submissions should also address the question of the appropriate orders for costs of the appeal.

Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.

Decision last updated: 30 June 2011