Drew, Sharon --- "Costs Column: Legal Costs as damages" [2019] PrecedentAULA 26; (2019) 151 Precedent 48

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LEGAL COSTS AS DAMAGES

By Sharon Drew

The distinction between damages and legal costs – that a successful plaintiff cannot recover costs of proceedings from the defendant as damages – is long-established.^[1] A successful party can recover legal costs of proceedings from any other party only following an award of costs by the court in the exercise of its discretion.

Costs of other proceedings are in a different category – a plaintiff who in other proceedings has incurred costs as a result of the defendant’s wrongdoing may potentially recover those costs from the defendant as damages, although the ‘other’ proceedings can include a cross-claim or third party claim.^[2]

The general principles for recovery of legal costs as damages can be summarised thus:

‘The action in which the costs of other proceedings have been recovered include both actions in contract and actions in tort. The other proceedings may have been brought by or against the plaintiff. If the plaintiff was successful in his previous proceedings his claim for costs will generally be confined to his own costs incurred, less any costs recovered from his unsuccessful opponent. If he was unsuccessful his claim will probably include not only his own costs but also any costs or damages which he may have been ordered to pay to his successful opponent. These latter sums will similarly be recoverable from the defendant. The other proceedings will generally have been between the plaintiff and some person other than the defendant, but situations may arise where the other proceedings were also between the plaintiff and the defendant.’^[3]

Recovery is subject to establishing remoteness of damage. The general principle was formulated in the matter of Hammond & Co v Bussey,^[4] where the UK Court of Appeal held that legal costs incurred by plaintiffs defending proceedings brought by a third party (sub-buyer) could be recovered as damages from the defendant, on the basis that they were damages that were reasonably within the parties’ contemplation as being probable as a result of the defendant’s breach of contract:

‘according to a reasonable business view of the reasonably probable course of business, the parties may be supposed to have contemplated, at the time when the contract was made, as the inevitable or at any rate the highly probable result of a breach of it, that there would be a lawsuit between the plaintiffs and their [sub-buyers], in which it would be reasonable for the plaintiffs to defend, and in which, if it turned out that there was a breach of the warranty, the plaintiffs would lose, and that they would thereby necessarily incur costs. Costs incurred under such circumstances appear to me to fall within the second branch of the rule in Hadley v Baxendale.’

The costs claimed as damages may result from a costs order made against the plaintiff, or may be costs incurred on a client/practitioner basis in the proceedings.

In specific circumstances, the court may award legal costs as damages where a Bullock or Sanderson order may appear to have been appropriate. In Provident Capital Ltd v Papa (No. 2),^[5] Mrs Papa was found liable to pay Provident’s legal costs of proceedings against her for possession of property under a Deed of Loan and Guarantee. Mrs Papa’s cross-claim against her former solicitor was upheld, and the damages recoverable by her from the solicitor included both her own legal costs of defending Provident’s claim (including her cross-claim against Provident for relief under the Contracts Review Act) and Provident’s legal costs payable under the Deed.

Where the legislature has determined that legal costs are not recoverable in a particular type of litigation, it would be contrary for a court to subsequently permit those costs to be recovered as damages in proceedings between the same parties.^[6] This reasoning has been applied in respect of various scenarios including costs of criminal proceedings,^[7] and costs of overseas legal proceedings.^[8] However, where the parties appear in different capacities in the subsequent proceedings, the prohibition of recovering legal costs as damages does not appear to apply.^[9]

Quantification of legal costs awarded as damages will not be achieved via the taxation/assessment scheme. Expert evidence is likely to be required – as is the case with other heads of damage – to establish the reasonableness of the quantum claimed and address issues such as mitigation of loss.^[10]

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] See, for example, Cockburn v Edwards [1881] UKLawRpCh 203; (1881) 18 Ch D 449.

^[2] For example in Gray v Sirtex Medical Limited [2011] FCAFC 40, the fact that legal costs were claimed as damages in a cross-claim between defendants did not preclude recovery.

^[3] Ross Ambrose Group Pty Ltd v Renkon Pty Ltd & Ors [1999] TASSC 127, [7] where Wright J recited Halsbury Laws of England, 4th ed, Vol. 12, part 1120.

^[4] [1887] UKLawRpKQB 188; (1887) 20 QBD 79.

^[5] [2013] NSWCA 156.

^[6] Anderson v Bowles [1951] HCA 61.

^[7] State of New South Wales v Cuthbertson [2018] NSWCA 320.

^[8] Talacko v Talacko [2015] VSC 287.

^[9] See, for example, Ballantyne & Anor v Boylan & Anor [2013] SASC 177. In that case, the Ballantyne parties were defendants to the initial proceedings in their capacity as beneficiaries, subsequently suing in their capacities as trustees; Boylan was joined to the initial proceedings in his capacity as settlor of the trust fund, and subsequently as solicitor of the former trustees.

^[10] For example, in Marshall v Fleming [2017] NSWSC 1107 damages claimed for legal costs incurred were quantified by affidavit evidence from a senior costs assessor by reference to a detailed bill of costs prepared by a costs consultant.