Drew, Sharon --- "Costs column: Lump sum costs orders" [2018] PrecedentAULA 77; (2018) 149 Precedent 52

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LUMP SUM COSTS ORDERS

By Sharon Drew

The trend for courts Australia-wide to favourably consider applications for lump sum costs appears to be gaining momentum. The primary purpose of a lump sum costs order is ‘to avoid the expense, delay and aggravation involved in protracted litigation arising out of taxation’.^[1]

The power to award costs, including lump sum costs, is discretionary and will be exercised where the circumstances warrant it. In most jurisdictions, a lump sum costs order has been an exception to the usual method of quantifying party/party costs by taxation or assessment. However, since October 2016 the Federal Court has adopted a preference for making a lump sum costs order wherever it is practicable and appropriate to do so.^[2]

There is no one defining case feature required for a court to make a lump sum costs order. The range of cases where orders have been made include straightforward cases – to save the parties difficulties with taxation, including the improbability of recovering the entire judgment and costs awarded – through to complex cases, where the costs of taxation are likely to be considerable. A party’s conduct during the proceedings which has unnecessarily or disproportionately increased costs may also be a factor in whether the court makes a lump sum costs order. Delay in bringing an application is likely to weigh against the court exercising its discretion.^[3]

The court must be satisfied that any lump sum costs order is made on the basis of a logical, fair and reasonable estimate of costs, and the onus is on the party seeking the order to demonstrate that there is a logical, fair and reasonable basis for the order.^[4] Quantification of lump sum costs is not arrived at by a process analogous to taxation; the approach will be a broad brush one.

The basic methodology for arriving at a reasonable estimate of costs for the purpose of a lump sum costs order has as its starting point the total costs liability to ensure that there is no breach of the indemnity principle. The court may then apply a reduction to reflect the nature of party/party costs as opposed to solicitor/client costs or indemnity costs, and the application of scale or other limitation on costs. On the one hand the court should be aware of prejudice to the unsuccessful party by overestimating the costs, and on the other hand it ought not cause injustice to the successful party by applying an arbitrary ‘failsafe’ discount on the costs estimate submitted.^[5] If the court is confident that there is minimal risk that the sum includes costs that might be disallowed on assessment, the argument in favour of a discount is seriously undermined.^[6] Where costs are payable on an indemnity basis, no discount may be appropriate.

The assessment of lump sum costs should reflect the successful party's costs by reference to the pleadings and the complexity of the issues raised, any interlocutory processes, preparation for hearing and the hearing itself.^[7] The court is not precluded from undertaking a close enquiry of costs relating to a particular issue or category of costs where appropriate;^[8] however, a line-by-line analysis is not appropriate.

Evidence from a costs expert may be useful to assist the court, particularly in respect of the cost and complexity of taxation, the taxation process and the extent of any reduction ordinarily applied, and the complexity of the proceedings. Expert evidence is not essential, however, and the solicitor with carriage may be able to address the issues adequately, particularly in a straightforward matter. Where the evidence does not narrow the issues in dispute and cross-examination of expert witnesses is required, the court may take the view that the lump sum costs application is unlikely to be less time consuming and less expensive than proceeding to taxation, and may decline to make a lump sum costs order on that basis.^[9]

While a comparison between matters may be of limited assistance, generally speaking certain types of costs are more prone to reduction on taxation than others. Barristers’ fees and disbursements may be liable to minimal reduction, while a solicitor’s professional fees – particularly those associated with work traditionally identified as solicitor/client – are likely to be subject to more substantial reduction. Comparison between judgments for specific reductions or quantification of costs should be treated with caution.

In most jurisdictions, an application for a lump sum costs order is unlikely to be accepted by the court as a matter of course simply to avoid the formal taxation process. Where the characteristics of a matter are such that a lump sum costs order is likely to facilitate the just, quick and cheap resolution of the costs issues, this type of application should at least warrant consideration as a cost-effective means of finalising the dispute.

Sharon Drew is Principal of Blue Ribbon Legal – specialising in legal costs disputes. PHONE [phone] EMAIL [e-mail] WEB www.blueribbonlegal.com.au.

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^[1] Beach Petroleum Nl and Claremont Petroleum Nl v Malcolm Keith Johnson and Others [1995] FCA 1250, [6].

^[2] Federal Court of Australia, Costs Practice Note (GPN-COSTS), 4.1.

^[3] See, for example, Tzaneros Investments Pty Ltd v Walker Group Constructions Pty Ltd (No. 4) [2018] NSWSC 431.

^[4] Mineralogy Pty Ltd v Sino Iron Pty Ltd (No. 7) [2018] FCA 1217, [50].

^[5] Idoport v NAB [2005] NSWSC 1273, [9].

^[6] Hancock v Rinehart (Lump sum costs) [2015] NSWSC 1640, [57].

^[7] Smoothpool & Anor v Pickering & Ors [2001] SASC 131, [12].

^[8] Paciocco v Australia and new Zealand Banking Group Limited (No. 2) [2017] FCAFC 146, [18].

^[9] See, for example, Wright Prospecting Pty Limited v Hancock Prospecting Pty Limited [No. 11] [2011] WASC 74.