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Alexander, Phillipa --- "Costs column: Lump sum costs orders - Phillipa Alexander" [2017] PrecedentAULA 26; (2017) 139 Precedent 48

LUMP SUM COSTS ORDERS

By Phillipa Alexander

Section 98(4)(c) of the Civil Procedure Act 2005 (NSW) empowers a court to make an order to the effect that the party to whom costs are to be paid is to be entitled to a specified gross sum instead of assessed costs.

A similar provision is found in Rule 40.02(b) of the Federal Court Rules 2011 (Cth), whereby a party or person who is entitled to costs may apply to the court for an order that costs be awarded in a lump sum, instead of, or in addition to, any taxed costs. Where proceedings are transferred to the Federal Court, the court also has power to order that the costs of the other court be awarded as a lump sum in lieu of taxation.^[1]

A lump sum costs order has a number of obvious advantages. The costs are immediately payable, so that the matter can be finalised without delay and the work and expenses associated with settlement negotiations and costs assessment or taxation are avoided. While the court will apply a discount to the incurred costs, this appears to be consistent with similar reductions that are made on a party:party costs assessment.

Historically, gross sum orders have been made in matters involving particularly large amounts of costs. However, orders are increasingly being made where costs are at the other end of the spectrum, as in the following judgments delivered in 2016:

While less frequent, orders for mid-range costs are also available as in Riva NSW Pty Ltd v Mark A Fraser & Anor,^[8] where an order for payment of $35,000 was made and Poulos v Eberstaller (No. 2),^[9] where an order for $148,278.78 was obtained.

The order is a discretionary one and for NSW state courts, the relevant principles are found in Harrison & Anor v Schipp (Harrison)^[10] and Hamod v State of New South Wales & Anor (Hamod).^[11] Giles JA held in Harrison that the power to make such an order:

'was not confined, and may be exercised whenever the circumstances warrant its exercise. It may appropriately be exercised where the assessment of costs would be protracted and expensive, and in particular if it appears that the party obliged to pay the costs would not be able to meet a liability of the order likely to result from the assessment.'^[12]

His Honour went on to cite Clarke JA in Wentworth v Wentworth,^[13] that 'the power should only be exercised when the Court considers that it can do so fairly between the parties, and that includes sufficient confidence in arriving at an appropriate sum on the materials available’.

In the Hamod appeal the costs respondent challenged the gross sum order made by the trial judge. Beazley JA rejected the complaint of the costs respondent (that he was denied his fundamental right to have the costs assessed in a formal costs assessment process) and held that there was no such fundamental right.^[14] The Court of Appeal held that there was no miscarriage of justice by the trial judge in making the gross sum order, taking into account the limited likelihood of the costs applicants actually recovering their costs including the costs of assessment, and the detailed evidence of the incurred costs which had been adduced. Beazley JA specified that the factors to be considered in making the order included:

'the relative responsibility of the parties for the costs incurred; the degree of any disproportion between the issue litigated and the costs claimed; the complexity of proceedings in relation to their cost; and the capacity of the unsuccessful party to satisfy any costs liability'.^[15]

Her Honour considered the exercise of the power is 'particularly appropriate where the costs have been incurred in lengthy or complex cases and it is desirable to avoid the expense, delay and aggravation likely to be involved in contested costs assessment’.^[16] Where a party's conduct has unnecessarily contributed to the costs of the proceedings, particularly where those costs are disproportionate, the power may also be exercised.^[17]

The evidence which must be before the court is an important issue. For very large amounts of costs, expert evidence from a costing specialist is advisable, but this may not be necessary for smaller matters. In James v Australian and New Zealand Banking Group Limited,^[18] where a gross sum order for $210,000 was obtained, Ball J held:

'17. The question is whether the evidence before the court is sufficient to enable the court to arrive at a rational and reasonable assessment of the defendants’ costs which does justice to both parties. What information is necessary to enable the court to undertake that task depends on the particular case. Also relevant will be the amount involved and the need to ensure that the costs of the evidence relevant to the assessment of a gross sum are proportionate to the amount claimed. In some cases, if the evidence in relation to a particular category of cost is inadequate, it may be more appropriate to adopt a discount that reflects that fact rather than to refuse to make a gross sum costs order at all.

18. In the present case, having regard to the costs claimed, in my opinion, it was reasonable for the defendants to rely on evidence from their solicitors rather than evidence from an independent costs consultant.'

Beazley JA noted in Hamod that the 'costs ordered should be based on an informed assessment of the actual costs, having regard to the information before the court (for example, by relying on costs estimates or bills)'.^[19]

Where a matter has a lengthy history, increased costs as a result of a costs respondent's conduct, issues with respect to the likelihood of recovery of the costs or the costs of an assessment, or involves a particularly large (or small) amount of costs and clear evidence of the incurred costs can be provided to the court, an application for a gross sum costs order may prove to be an apposite course of action. Where a party has the benefit of an indemnity costs order, a gross sum costs order would seem to be particularly appropriate.

Phillipa Alexander is a specialist in legal costs with Costs Partners. PHONE (02) 9006 1033 EMAIL Phillipa@costspartners.com.au.

This article has been prepared for Precedent by Costs Partners. For more information on Costs Partners, please go to www.costspartners.com.au.

^[1] Rule 40.05(b) Federal Court Rules 2011 (Cth).