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Kessly v Benjamin & Khoury Pty Ltd (No.2) [2019] FCCA 216 (6 February 2019)

Last Updated: 7 February 2019

FEDERAL CIRCUIT COURT OF AUSTRALIA

Cases cited: Calderbank v Calderbank [1975] 3 All ER 333 Kimber v The Owners Strata Plan No. 48216  [2017] FCAFC 226

REPRESENTATION

ORDERS

(1) The applicant pay the respondent’s costs of the application on an as between party and party basis, as agreed, or failing agreement, as taxed in accordance with Part 40 of the Federal Court Rules 2011.

SYG 642 of 2018

Applicant

And

Respondent

REASONS FOR JUDGMENT

1. On 16 October 2018, I delivered judgment in Kessly v Benjamin & Khoury Pty Ltd [2018] FCCA 2918, dismissing the application made by Ms Kessly, the debtor, to set aside Bankruptcy Notice number BN221948. Benjamin & Khoury Pty Ltd, the successful respondent, and creditor, seeks its costs of the proceeding on an indemnity basis.

Background

2. In anticipation of successfully maintaining the Bankruptcy Notice in the proceeding, at the substantive hearing before me Benjamin & Khoury provided to the Court a “Summary of Memorandum of Costs” for the period 12 March – 18 May 2018 (excluding 7 and 8 May 2018, the subject of a separate order made by Registrar Wall), and submitted that it should be entitled to costs on an indemnity basis for that period in the sum of $37,150.00, and thereafter for the whole of the proceeding.
3. As I described in Kessly, at [2], Ms Kessly submitted that Benjamin & Khoury’s claim for costs was not recoverable because Benjamin & Khoury is an incorporated legal practice, and the “Chorley Exception” does not apply. My consideration and decision on that claim is set out in Kessly, at [48]–[58]. In short, I concluded that Benjamin & Khoury was entitled to its costs of the proceeding.
4. The issue remaining to be decided is whether Benjamin & Khoury is entitled to the beneficial exercise of the Court’s discretion to award costs on an indemnity basis, or to its costs as between party and party (see Kessly at [55]). Following delivery of reasons in Kessly, and responding to the Court’s invitation, both parties have filed and rely on written submissions on the issue of costs.
5. Ms Kessly accepts that the general rule is that costs follow the event, and that Benjamin & Khoury, therefore, is entitled to its costs. She opposes the application seeking indemnity costs, however, and submits that there is no basis for the Court to exercise its discretion to award such costs.
6. For the reasons that follow, I have come to the conclusion that Benjamin & Khoury is not entitled to indemnity costs. It is entitled to its costs as between party and party, failing agreement, to be taxed in accordance with Part 40 of the Federal Court Rules 2011.

The parties’ submissions

Benjamin & Khoury

7. As at 25 October 2018, Benjamin & Khoury calculates its total costs incurred in the present litigation as $53,189.80 (including disbursements). However, Benjamin & Khoury seek an order for “fixed costs on an indemnity basis in the reduced amount of $40,000”, and says that this is in order to avoid incurring further costs through an assessment procedure. It does not propose that the Court fix costs in any particular amount should it not succeed in obtaining an order for indemnity costs.
8. In support for its claim for indemnity costs, and in justification of the amount calculated, Benjamin & Khoury says:

(i) Ms Kessly has followed a pattern of retaining solicitors for a short time to prepare legal documents, and then appeared selfrepresented at hearings. Benjamin & Khoury asserts that Ms Kessly changed lawyers 17 times from December 2017 to 7 May 2018, apparently upon her arbitrary discretion, and that in the “Bankruptcy Proceedings” alone she changed lawyers 4 times from December 2017 to 7 May 2018. Benjamin & Khoury say that this pattern of constantly changing lawyers has resulted in “considerable double handling, confusion and work required [by Benjamin & Khoury] to update and work with the new lawyers”;
(ii) the amount claimed in the Bankruptcy Notice has been due and payable since 2015, and had Ms Kessly paid the amount assessed by the Costs Assessor and Review Panel appointed by the Supreme Court of New South Wales, the costs incurred by Benjamin & Khoury in the present litigation would not have been incurred;
(iii) Ms Kessly’s application to set aside the Bankruptcy Notice was “hopeless from the start”- the arguments raised were unfounded and failed;
(iv) it made a “Calderbank” offer to Ms Kessly by letter dated 23 February 2018 offering to withdraw the Bankruptcy Notice upon payment of $94,908.25 (stated to be the judgment/order amounts plus judgment interest). It did not receive any response to that communication. I note that that communication was made before the application was filed (on 12 March 2018). A copy of that letter is before the Court.

9. Thus, in sum, Benjamin & Khoury (by its counsel, Mr Rollinson) says if Ms Kessly had paid the debt alleged, when it was assessed as payable, accepted the “Calderbank” offer, not brought the application, and not repeatedly changed solicitors and appeared as a litigant in person, it would not have had to incur the costs. Accordingly, it is justified in seeking an order for indemnity costs.
10. In support of the claim for indemnity costs in a fixed amount, Benjamin & Khoury say it made a proposal inter partes when I delivered judgment on 16 October 2018. It says that proposal was to settle the proceeding to set aside the Bankruptcy Notice for costs fixed at $30,000, and that it sought to facilitate a conference to negotiate a fixed amount for costs, which was responded to with the advice that the lawyers representing Ms Kessly in the proceeding before me did not have instructions in regards the costs negotiations, and that another firm had been appointed.

Ms Kessly

11. Ms Kessly (by her solicitor, Ms Fox) submits that the proceeding was not an abuse of process, had “no sufficient or unusual feature”, or any relevant delinquency, warranting the exercise of the Court’s discretion favourably for the benefit of Benjamin & Khoury. She disputes that the proceeding was “hopeless”, submits that the application to set aside the Bankruptcy Notice had reasonable prospects, and points out that there was no submission or finding that it was hopeless, groundless, or the like (c.f. Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff (No.2) [2009] NSWCA 12). To suggest that the application was weak, is not, of itself, sufficient to attract an award of indemnity costs.
12. Ms Kessly submits that pursuant to rule 21.02(c) of the Federal Circuit Court Rules 2001, Benjamin & Khoury’s costs should be referred for taxation, necessary to properly assess Benjamin & Khoury’s fair and reasonable costs, and that pursuant to rule 40.29(b) of the Federal Court Rules 2011, the taxation officer should apply the scale costs as set out in Schedule 3 to those Rules.
13. She submits that having regard to the nature of the original dispute giving rise to the debt set out in the Bankruptcy Notice (legal costs charged by Benjamin & Khoury acting for Ms Kessly in other proceedings, the appropriateness of which is now subject to proceedings brought by Ms Kessly in the District Court of New South Wales), taxation of the costs of this proceeding is warranted, and would be an inexpensive and efficient means of determining the amount of costs.
14. As to the allegation that Ms Kessly constantly changed her lawyers, and her conduct thereby resulted in “considerable double handling, confusion and work required to update and work with the new lawyers”. Ms Fox submits that this is simply inaccurate. Her firm has been engaged since 4 May 2018, and continues to act for Ms Kessly in the proceeding. However, as I have noted above, the application to set aside the Bankruptcy Notice was filed on 12 March 2018. Leave to file and serve a further amended application was given on 8 May 2018, and Ms Kessly was ordered to pay Benjamin & Khoury’s costs thrown away by the adjournment of that day.
15. Ms Fox says that Benjamin & Khoury’s assertion that her firm does not act in relation to costs negotiations is not correct, and Ms Fox explains the matter. Ms Fox notes that Ms Kessly appeared on her own on two occasions in the course of the present proceeding (I note that Ms Kessly was at all times represented before me).
16. In response to the submission that the letter of 23 February 2018 constituted an offer of compromise or Calderbank letter, Ms Kessly submits that a proposal to pay the whole amount claimed owing, together with judgment interest, is no compromise, and does not attract the principles in Calderbank v Calderbank [1975] 3 All ER 333. Further, the letter was sent before the present litigation was commenced, and was not an offer made in respect of the application before me, or the present proceeding.
17. Lastly, as to the amount claimed, and Benjamin & Khoury’s assertion that the proposal made on 16 October 2018 to compromise the costs was a “substantial compromise to facilitate settlement”, Ms Kessly submits that not then being informed of the total amount of costs claimed incurred by Benjamin & Khoury, she was unable to properly assess whether the proposal was a substantial compromise. As at 16 October 2018 the only information known to Ms Kessly as to the costs incurred was the Summary. Ms Kessly says the first time she was informed of the total costs amount now claimed was when she was served with Benjamin & Khoury’s submissions on costs on 25 October 2018, despite having earlier requested that information.

Consideration

18. The Dictionary to the Federal Court Rules defines the expression “costs as between party and party” as meaning “only the costs that have been fairly and reasonably incurred by the party in the conduct of the litigation”. The Dictionary defines “Costs on an indemnity basis” as “costs as a complete indemnity against the costs incurred by the party in the proceeding, provided that they do not include any amount shown by the party liable to pay them to have been incurred unreasonably in the interests of the party incurring them”.
19. In substance, Benjamin & Khoury assert that prior experience with Ms Kessly justifies the “considerable double handling, confusion and work” it admits it undertook. It calls in aid the observations of the Full Court in Kimber v The Owners Strata Plan No. 48216  [2017] FCAFC 226  at  [70] -  [77] , and particularly at [70] that, when dealing with a selfrepresented litigant, “it is the duty of [the represented party] to assist the Court to understand claims made by the litigant in person, and what might be the evidence called in aid of those claims. It is the duty of the lawyer representing the [represented party] to assist it to fulfil that duty. Those duties are made explicit by ss 37M and 37N of the Federal Court of Australia Act 1976”.
20. The observations of the Full Court in Kimber were made in the context of an appeal from a summary judgment obtained at the suit of the represented party. Whilst the Court’s observations have a broader application, it does not follow from a represented party’s lawyers fulfilling their and its client’s obligations to the Court as adverted to above, that the party obtains full indemnity for its costs. Indeed, after the observations set out at [70] to which reference is made above, the Court continued: “In exercising its discretion to award costs, the Court or a Judge may take into account the failure to comply with either ss 37N(1) or (2).” (Kimber, at [70], emphasis in the original). That is, that failure of a party to comply with its duties to the Court and to the opposing party may disentitle it to costs.
21. Nor does it follow as a consequence of a party changing its legal representation or appearing self-represented that the opposing party’s continuing legal representatives as a matter of course will be required to undertake considerable double handling of documents or duplication of tasks, or that the persons performing the tasks will require closer supervision than otherwise may be the case. I am not persuaded that the matters adverted to by Benjamin & Khoury account for the admitted double handling, and close attention to the same or closely related tasks by a number of persons that is apparent on my perusal of the Summary. I am not persuaded that those claimed circumstances of changing solicitors and self-representation are such as to constitute such a sufficient or unusual feature or features to attract an award of indemnity costs in the present case.
22. I accept Ms Fox’s account of Ms Kessly’s engagement of her firm in this proceeding, noting that the application was filed on 12 March 2018, and thus that Ms Kessly had engaged other solicitors, and may have appeared on her own account in the period in which the litigation was on foot and before Teneo Legal was engaged.
23. On taxation the taxing officer will have regard to the conduct of the parties when determining whether costs are fairly and reasonably incurred (observing that the purposes of a costs order in the ordinary course is to compensate a successful party, and not to punish the unsuccessful party). That conduct may encompass the conduct of a successful party in responding to circumstances where the unsuccessful party changes solicitors, or appears unrepresented in the course of the conduct of the instant proceeding (namely, the application before me).
24. That an application fails, does not mean that indemnity costs should be ordered. I do not consider that the strength, or otherwise, of the application in the present case is such as to attract any other order than the usual order that costs be ordered on an as between party and party basis: see Kessly.
25. The submission that had Ms Kessly paid the amount assessed, and done so when she received the assessment (or, presumably, at any earlier time than the commencement of the application), the costs of this proceeding would not have been incurred, whilst self-evident, does not provide a basis in the present case for an order for indemnity costs.
26. It does not necessarily follow that receiving an offer and rejecting it puts a party at risk of costs. The letter of 23 February 2018 sought full payment of the debt alleged together with payment of judgment interest. I do not consider that is a genuine attempt to compromise the dispute regarding the claimed debt, or to compromise any of the claims made in the application (even apart from the chronological detail that the application had not then been filed). In circumstances where the letter demanded payment in full of the judgments/orders, and payment in full of judgment interest, I do not accept that Ms Kessly acted unreasonably in not responding to the 23 February 2018 letter.
27. As to Benjamin & Khoury’s submissions in relation to the proposal asserted made on 16 October 2018, I do not consider that Ms Kessly acted unreasonably in rejecting the asserted proposal in circumstances where the only material relevant to costs then before her was the Summary, and noting that Benjamin & Khoury now admit that it undertook “considerable double handling”, and additional work (presumably than it would have done in the ordinary course of defending a bankruptcy notice on an application to set it aside).
28. As to fixing an amount of costs, Benjamin & Khoury asks that I fix costs on an indemnity basis at $40,000. As I have stated, I do not propose to order indemnity costs. Accordingly I decline to fix costs.
29. Whilst ordinarily there may be merit in fixing a sum for costs and avoiding any additional costs of taxation, any lump sum ordered should be an estimation that is logical, fair and reasonable. I have not been asked to fix costs on an as between party and party basis. In any event I am not in a position to make an estimation on the material before me.

Conclusion

30. It follows that I decline to award Benjamin & Khoury indemnity costs. As foreshadowed at [6] above, I will order that that the applicant pay the respondent’s costs of the application on an as between party and party basis, as agreed, or failing agreement, as taxed in accordance with Part 40 of the Federal Court Rules 2011. I note that within Part 40, rule 40.29(b) requires that the taxing officer allow costs for the work done in accordance with Schedule 3.

I certify that the preceding thirty (30) paragraphs are a true copy of the reasons for judgment of Judge Baird

Associate:

Date: 6 February 2019