FEDERAL COURT OF AUSTRALIA

Coshott v Burke (No 2) [2018] FCAFC 81

ORDERS

THE COURT ORDERS THAT:

1.    The appeal be dismissed with costs.

2.    Each party have seven days from the date of this order to file and serve submissions limited to two pages on the appropriateness of making lump sum costs orders.

3.    Each of the first to fourth respondent have seven days from the date of this order to file and serve a Costs Summary.

4.    The appellants have a further seven days to file and serve a Costs Response.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

THE COURT:

1    This is an appeal from a decision of a single judge of this Court awarding lump sum costs against the appellants in favour of the first, second, third and fourth respondents to the appeal: Fewin Pty Ltd v Burke (No 3) [2017] FCA 693.

2    The primary judge heard and determined the application for lump sum costs orders made by John Christopher Burke, the Official Trustee in Bankruptcy, Maxwell William Prentice and the Inspector-General in Bankruptcy. Her Honour set out the background to the proceedings as follows:

3    The proceeding was commenced by the filing of an originating application on 14 October 2015. The proceeding, insofar as orders pursuant to s 179 of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act) were sought, was set down for hearing for four days commencing on 5 September 2016.

4    On 6 September 2016 the hearing date was vacated. The applicants, Fewin Pty Ltd (Fewin), Ronald Michael Coshott, Ljiljana Coshott and Robert Gilbert Coshott, were granted leave to file an amended statement of claim, the effect of which was to abandon any claim pursuant to s 179 of the Bankruptcy Act. The applicants were ordered to pay the Official Trustee’s and Mr Prentice’s costs of the applications pursuant to s 179 of the Bankruptcy Act on an indemnity basis and to pay Mr Burke’s costs of the applications pursuant to s 179 of the Bankruptcy Act on the usual basis.

5    The proceeding was then set down for hearing for five days commencing on 12 December 2016. On the first morning of the hearing orders were made by consent as between the applicants and the Official Trustee, which included an order that the originating application against the Official Trustee be dismissed and that the applicants pay her costs as agreed or taxed on a party-and-party basis. On the second day of the hearing further orders were made as between the applicants and Messrs Burke and Prentice, including an order granting leave to the applicants to file and serve a notice of discontinuance of the whole of the proceeding and an order that the applicants pay Messrs Burke and Prentice’s costs of the proceeding on an indemnity basis. On the making of those orders Messrs Burke and Prentice immediately foreshadowed applications for lump sum costs orders against the applicants.

6    Subsequently, the Official Trustee joined in the application for a lump sum costs order of her costs of the proceeding and the Inspector-General, who has the benefit of two costs orders made in her favour in the proceeding, made an application for a lump sum costs order. On 12 May 2016 an application to join the Inspector-General to the proceeding had been dismissed and the applicants were ordered to pay the Inspector-General’s costs of that application. On the same date a subpoena issued to the Inspector-General at the request of the applicants had been set aside. On 23 June 2016 the applicants were ordered to pay the Inspector-General’s costs of the application to set aside the subpoena on an indemnity basis.

3    When the appeal came before this Court on 22 November 2017, ex tempore reasons were delivered refusing leave to advance grounds of appeal not raised before the primary judge: see Coshott v Burke [2017] FCAFC 230 (Coshott No 1).

4    Following those orders, a number of grounds of appeal remained. The Court heard submissions from counsel with respect to the remaining grounds.

REMAINING GROUNDS OF APPEAL

5    With respect to the first respondent (Mr Burke), Grounds 5 and 6 remain, with respect to the second respondent (the Official Trustee in Bankruptcy), Grounds 3 and 4 remain, and with respect to the third respondent (Mr Prentice), the first two sentences of Ground 1 remains. No ground of appeal remains with respect to the fourth respondent (the Inspector-General in Bankruptcy).

6    The appellants’ written submissions with respect to each respondent were preceded by submissions directed to the requirements of the Court’s Costs Practice Note (GPN-COSTS). The appellants submitted:

5.    [The] Federal Court Costs Practice Note (GPN-COSTS) sets out the key components of the relevant practice and procedure with respect to an application for a lump sum costs order.

6.    In particular, part 4.10 of GPN-COSTS states “in cases where a lump-sum costs procedure is to take place, the Costs Applicant should file an affidavit in support of the lump-sum claim (“Costs Summary”) in accordance with the timetable set by the judge.”

7.    The First Respondent did not file an affidavit in support of his lump sum claim, he filed Submissions by his counsel, despite the clear requirement to both verify the matters set out in Part A of the Annexure A or address the relevant matters set out in Part B of Annexure A to GPNCOSTS. After the Appellants had filed and served their submissions, the First Respondent on 24 February 2017 filed an affidavit by his counsel, James T Johnson. The swearing of an affidavit to be put into evidence in proceedings in which the barrister is appearing is a breach [of] regulation 11 of the Legal Profession Uniform Conduct (Barristers) Rules 2015 as it is not within the scope of the work of a barrister as defined by Reg 11. It is also a breach of the barrister’s duty to the Court of independence. The affidavit did not comply with the mandatory requirements of GPNCOSTS.

8.    The requirement to comply is expressed in GPN-COSTS at 4.10 in mandatory terms.

9.    In Bayley & Associates Pty Ltd v DBR Australia Pty Ltd [2014] FCA 346, Foster J at [20] makes it clear that he relied upon an affidavit of the costs applicant which was “comprehensive and very detailed” in which the approach to the assessment was explained. On that basis, his Honour determined the application to be “fair, logical, rational and reasonable”.

7    The Court has considered those submissions where relevant to each ground of appeal.

Ground 5 as against Mr Burke

8    This ground of appeal contends that the primary judge erred in not discounting the amount claimed by Mr Burke to take into account that some of that may have been made up of solicitor and client costs.

The appellants’ submissions

9    The appellants’ written submissions with respect to Mr Burke are set out under the heading “First Respondent and generally”:

10.    Absent an affidavit by the First Respondent in the application complying with the mandatory requirements of the practice note [GPN-COSTS], the Court was deprived of a proper basis on which to reach a conclusion and therefore should not have done so.

11.    Absent a complying affidavit, a respondent could not meaningfully respond (in affidavit form as envisaged by part 4.14 of GPN-COSS [sic]) and contest the claimed costs (the quantum and basis for which are contested) or application more generally. Such an approach renders the application process nugatory and procedurally unfair to the Respondents.

12.    On these bases alone, the First Respondent’s application should have been rejected.

13.    Additionally, Part 4.11 of the GPN-COSTS [Practice Note] states that “the Costs Summary must be clear, concise and direct and not resemble a bill of costs in taxable form, nor should it contain submissions on the law.”

14.    The First Respondent’s Annexures B and C (being 2 separate invoices issued by the First Respondent’s counsel in the proceedings) gave rise to a result precisely the opposite of that sought by part 4.11 and, again, seemed aimed to thwart the approach required to properly determine a lump sum costs application.

15.    This is also reflected in the fact that the “lump sum” identified and sought by the First Respondent in his counsel’s submissions merely replicated the total figure payable on counsel’s invoice (Annexure C).

10    Mr Coshott, who appeared for himself at the hearing, made oral submissions that an indemnity costs order, as was initially made by the primary judge, is a party and party costs order. It does not cover solicitor and client costs. In assessing the quantum of an indemnity costs order, it must be established which of the claimed costs are party and party costs, and which of the costs are solicitor and client costs. Any costs that are solicitor and client costs should not be included in the lump sum costs award made on an indemnity basis, as an indemnity costs order entitles a party to the entirety of their costs on a party and party basis.

11    Mr Coshott’s submissions were that the primary judge was required to satisfy herself that all costs claimed were party and party costs, and that her Honour had failed to consider that explicitly, as revealed in her Honour’s reasons. He submitted that the primary judge had instead made orders for the full amount claimed in the absence of any evidence to the contrary.

12    Mr Coshott submitted that, because her Honour was not provided with an itemised bill, it would have been “virtually impossible for a judge to be able to say there is no solicitor/client [costs] because there’s no identification of the work that’s done; only the hours” (transcript p 49 lines 22-24).

13    It was submitted that, given that the amount claimed was the same as the amount invoiced to Antares Managing Agency Limited (Antares), Mr Burke’s insurer, it was evident that no discount had been applied to the sum claimed. Mr Coshott submitted that it was the practice of courts to discount costs, generally at a rate of 30% in the case of “ordinary costs” and 15% in the case of indemnity costs.

14    Mr Coshott’s submissions were underpinned by a contention that the calculation of a lump sum costs award must be procedurally fair to the party against whom the award is made, and the Costs Practice Note aims to ensure that procedural fairness.

Mr Burke’s submissions

15    The first respondent’s written submissions with respect to this ground are as follows:

21.    The very foundation of the exercise of discretion on the part of Justice Markovic is that it is an unfettered discretion. Her Honour dealt with the question of discount Judgement [sic] at [59], [61] – [66] so far as it related to the First Respondent. In doing so she relied upon, as she is obliged to do, the uncontested factual evidence that was before her.

16    Mr Johnson, counsel for Mr Burke, made oral submission on behalf of Mr Burke that the appellants had misapprehended the distinction between costs ordered on a party and party basis and costs ordered on an indemnity basis. Mr Johnson submitted that, since the introduction of the Federal Court Rules 2011 (Cth) (the Rules), an order for indemnity costs is to be understood according to the definitions contained in the dictionary at Sch 1 of the Rules.

17    Mr Johnson submitted that when indemnity costs are ordered, subject to anything explicit that may qualify such an order, it is to be understood by reference to that definition. Mr Johnson submitted that, in light of the definition of indemnity costs, the concept of solicitor and client costs is no longer relevant, unless a judge awards costs specifically on that basis.

18    Mr Johnson referred the Court to [59] to [61] of the primary judge’s reasons, and submitted that, as the docket judge, her Honour had had familiarity with the proceedings at first instance, which a costs assessor or taxing officer would not have had. The primary judge had dealt with the decision of Brereton J in Hancock v Rinehart (Lump sum costs) [2015] NSWSC 1640 (Hancock) (cited at [61] to [62] of the primary judge’s reasons), which he submitted “brought into play the concept of no discount for indemnity” (transcript p 61 lines 30-31). Mr Johnson referred to her Honour’s reasons at [64] to [65].

19    Mr Johnson submitted that the primary judge had explained the submissions that were before her Honour, explained her reasoning process, and drawn a conclusion, and that no error in that process has been identified by the appellant. The lump sum costs applicant, Mr Burke, laid an evidentiary foundation before the primary judge to satisfy her Honour that the discretion to make a lump sum costs order in s 43(3)(d) of the Federal Court of Australia Act 1976 (Cth) (the FCA Act) was enlivened. The appellants did not even attempt to contradict that evidence by, for example, cross-examining Mr Johnson on the content of his affidavit.

Consideration

20    The general principles applicable to the quantification of a lump sum costs order in the circumstances that were before her Honour are set out at [60] to [62] of the primary judge’s reasons.

21    It is well established that a discount may be applied to the sum of costs claimed when making a lump sum order, but the appropriateness of any discount and the amount by which the lump sum is to be reduced is dependent on the facts of each case: Beach Petroleum NL v Johnson (No 2) [1995] FCA 350; 57 FCR 119; Seven Network Limited v News Limited [2007] FCA 2059; Telstra Corporation Limited v Phone Directories Company Pty Ltd [2011] FCA 1463.

22    In determining the quantum of the lump sum order to be made, the primary judge reasoned:

59    The applicants submitted that care had to be taken not to “under discount” the amount of any claim made. They also submitted that the party against whom the order was to be made needed to be given an opportunity to investigate and, if necessary, challenge the evidence. I accept that submission. Indeed, the Costs Practice Note, which sets out the procedure to be adopted by the parties where an application for a lump sum costs order is made, makes provision for a costs respondent to file an affidavit responding to the material relied on by an applicant for a lump sum costs order in accordance with the timetable set by the judge. Orders were made by the Court for the applicants to file any evidence on which they wished to rely in relation to the applications for lump sum costs orders. Despite the orders made by the Court and the procedure described in the Costs Practice Note, the applicants have not put on any evidence challenging the quantum of costs claimed by any of the parties. The evidence of quantum relied on by Messrs Burke and Prentice, the Official Trustee and the Inspector General is unchallenged.

60    I address the question of quantum of each of the claims below. However, I note that in doing so I am not required to undertake a line by line analysis of the costs claimed. To do so would be contrary to the rationale behind the lump sum costs order process. As Foster J observed in Bayley & Associates Pty Ltd v DBR Australia Pty Ltd [2014] FCA 346 at [17(e)], a broad brush approach should be taken by the Court in deciding whether to make a lump sum costs order and in arriving at the quantum thereof. The task is one of estimation or assessment and not of arithmetic.

61    In assessing quantum the Court is entitled to take into account the evidence that is before it; its own observations of the proceeding and the judge’s own experience: see Bobb v Wombat Securities Pty Ltd (No 2) [2013] NSWSC 863 at [10] (per Beech-Jones J). Hancock v Rinehart (Lump Sum costs) [2015] NSWSC 1640 concerned an application by the plaintiffs for a lump sum costs order in respect of an order for indemnity costs. The only matter for the court to determine was quantum; the parties did not dispute that the case was an appropriate one for a lump sum costs order. One of the issues to be considered was whether there should be a “further overall global reduction” on account of “the lump sum nature of the assessment”. The court had before it evidence from a costs consultant and evidence from the plaintiffs’ solicitor as to what he would expect the plaintiffs to recover on an assessment on an indemnity basis. At [57]-[58] Brereton J said the following about the issue of whether a discount should be applied:

57    While it is undoubtedly the usual practice of the court when making a lump sum costs order to apply a discount for the reasons mentioned. That does not mean that the Court must apply a percentage discount to the sum sought by the successful party, and the Court “must be astute not to cause an injustice to the successful party” by applying “an arbitrary ‘fail safe’ discount on the costs estimate submitted to the court”. Thus if the court can be confident that there is little risk that the sum includes costs that might be disallowed on assessment, the case for a discount is seriously undermined.

58    Where a gross sum is assessed on an indemnity basis, and there is no evidence of unreasonableness, it may be appropriate if there is evidence that the successful party “errs on the side of excessiveness [as in excessive use of legal services]”.

(footnotes omitted)

62    At [61] Brereton J relevantly said:

Because this is an indemnity order, the first defendant bears the onus of proving unreasonableness, and any doubt amount the reasonableness of the amount charged for a particular item is to be resolved in favour of the plaintiffs. Notwithstanding the availability of a detailed itemised bill, the first defendant has not identified any element of unreasonableness: there is no suggestion by the first defendant that the plaintiffs have been excessive in their use of legal services, or that the rates charged by the solicitors and barristers retained by the plaintiffs were excessive, or that it was unreasonable for the plaintiffs to have retained any of those advisors.. That no assertion of unreasonableness has been made, where the first defendant bears the onus, is significant. It is also unsurprising – given that, in the context of this litigation and the resources with which the plaintiffs were confronted, they have adopted a relatively economical approach to the litigation.

(footnotes omitted)

63    Here too the applicants have had the benefit of evidence which sets out the hourly rates, tasks undertaken and time spent on particular items of work. Despite that, they have not filed any evidence which challenges the reasonableness of the charges in each case, be it in relation to the hourly rates or daily rates for counsel; the items of work undertaken; or the time spent on items of work. Their objections have gone no further than assertions, made by way of submission, which are insufficient to discharge the onus of proof which they bear if they wish to prove that any of the charges are unreasonable.

23    Her Honour considered the lump sum sought by Mr Burke of $84,280.21 inclusive of GST for actual costs and disbursements and an estimate of future costs in relation to the application for lump sum costs (at [64]). Her Honour had regard to the evidence before her that Mr Burke was liable for those costs. At [65] the primary judge reasoned:

In my opinion the amount claimed is reasonable. Mr Johnson was, with minor exceptions, the only person who undertook the work on behalf of Mr Burke. The rates charged by him were within the Guide to Counsel Fees for junior counsel particularly having regard to Mr Johnson’s years of experience. There is no evidence that any of the work undertaken or the time spent on that work was unreasonable. On my own review of the tax invoice dated 15 December 2016, which sets out the bulk of the costs incurred, the amount claimed appears to be reasonable. The submission that the charges may have been less if a solicitor was retained to carry out some of the tasks is rejected. There is no evidence that that would be the case. Mr Burke has the benefit of an indemnity costs order and in my opinion is entitled to recover the whole of the amount claimed for work done in relation to the proceeding and associated disbursements.

24    Significantly, the primary judge found at [66] that the costs claimed for work done in relation to the application for lump sum costs that was then before her Honour had been incurred after the indemnity costs order was made on 13 December 2016, and were appropriately to be awarded on the ordinary basis. Consequently, her Honour accepted the discounted sum sought by Mr Burke ($1,650 of $2,750 incurred costs) as reflecting “an appropriate discount on those costs given the view I have taken of the basis on which they should be quantified”.

25    The primary judge acknowledged the submissions advanced by the appellants regarding the discount of any lump sum costs order. It is clear from the relevant case law correctly cited by her Honour that a discount or reduction is available in the calculation of lump sum costs on an indemnity basis, but if a court is satisfied that the sum sought does not include unreasonable costs then it should not cause injustice to the successful party by automatically discounting the costs estimate: see Hancock. Further, the party seeking a reduction in costs bears the onus of establishing that the sum sought is unreasonable or excessive.

26    In the circumstances that were before the primary judge, the appellants failed to put on any evidence to establish that a discount ought to be applied to the lump sum claimed. The appellants did not challenge the affidavits filed by the first respondent, Mr Burke. It is evident from the primary judge’s reasons that her Honour distinguished between the lump sum costs that were being awarded on an indemnity basis following the 13 December 2016 orders, and costs that were properly to be calculated on the ordinary basis and therefore discounted. No discount was applied to the costs awarded on an indemnity basis as there was no evidence put before her Honour by the appellants that it ought to be.

27    To require a judge to assess the reasonableness or otherwise of a lump sum by going through each claimed cost would be to require a judge to undertake a costs assessment. That would defeat the entire purpose of the lump sum costs procedure as set out in the Costs Practice Note.

28    This ground must fail.

Ground 6 as against Mr Burke and Ground 3 as against the Official Trustee in Bankruptcy

29    It is contended as against both the first and second respondents that the primary judge erred in reversing the onus of proof to the appellant. It is convenient to deal with both grounds together.

Appellants’ submissions

30    The appellants’ written submissions with respect to the grounds of appeal advanced against Mr Burke are set out at [9] above.

31    With respect to the Official Trustee in Bankruptcy, the appellants’ written submissions as to the onus of proof are as follows:

26.    Claimants bear the onus of proof that the indemnity principle (Oshlack v Richmond River Council [1998] 193 CLR 72) has been complied with. … [leave not granted] … Her Honour erred in awarding lump sum costs to the Official Trustee and/or the Inspector-General. The material relied upon by the claimants did not make clear who was liable for and had paid the costs claimed.

32    Mr Coshott advanced that the person seeking the benefit of a lump sum costs order must persuade the Court that there is a reasonable foundation for the exercise of the Court’s discretion to make such an order, and raise an evidentiary foundation in support of the exercise of the discretion. The judge, in exercising the Court’s discretion, should ensure that there is no windfall gain to the party seeking a lump sum costs order, and the absence of contrary evidence does not relieve the Court of its obligation to be satisfied, on the evidence before it, that a lump sum costs order is appropriate and that it ought to be made in the sum sought.

33    Mr Coshott submitted that because, unlike in a taxation of costs, there is no itemised bill of costs, it is more difficult for a respondent to be able to identify any particular costs which are unreasonably incurred or which are solicitor and client costs as opposed to party and party costs. For that reason, the Costs Practice Note must be complied with strictly to ameliorate the prejudice to a respondent who cannot assess whether the costs claimed are reasonable. Behind this submission is the contention that the process for the assessment of lump sum costs application provided for in the Cost Practice Note must be procedurally fair with respect to a respondent. That requires at least enough particularity with respect to the costs claimed that a respondent can meaningfully address the reasonableness of those costs. Strict compliance with the Costs Practice Note is required, and would allow a respondent to do that.

34    Mr Coshott submitted that the only evidence before the Court in relation to Mr Burke was the affidavit of Mr Johnson. No independent evidence was put on as to the reasonableness or otherwise of the amount sought. With respect to the second respondent, Mr Coshott conceded in oral submissions that he could not contend that the Official Trustee in Bankruptcy had not complied with the Costs Practice Note, particularly the Costs Summary requirements contained in Annexure A.

Mr Burke’s submissions

35    Mr Burke’s written submissions on ground 6 as advanced against him are as follows:

22.    This Ground has not been made out in circumstances where there was uncontested evidence filed on behalf of the First Respondent to support his claims for costs and no attempt was made to cross examine or otherwise test that material.

36    Mr Johnson submitted that the appellants had misapprehended the distinction between costs ordered on a party and party basis and costs ordered on an indemnity basis. Mr Johnson referred the Court to the definitions contained in the dictionary at Sch 1 of the Rules:

costs, unless the context otherwise provides, means costs as between party and party.

costs as between party and party means only the costs that have been fairly and reasonably incurred by the party in the conduct of the litigation.

costs on an indemnity basis means 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.

37    Mr Johnson submitted that it is clear from the terms of the definition of indemnity costs that the onus of establishing that the costs claimed are unreasonable is on the appellant. Mr Johnson submitted that in the circumstances of this case, an indemnity order had been made and an affidavit tendered on behalf of Mr Burke, annexing the relevant costs agreements in support of the lump sum costs application. The burden was upon the appellants to challenge the claimed costs.

38    Mr Johnson submitted that the invoices issued in accordance with that costs agreement, which were also before the primary judge, were sufficiently detailed with respect to the nature of the work that was carried out and the charges incurred to satisfy r 40.18 of the Rules had the costs been taxed. Mr Johnson submitted that the evidence before the primary judge was sufficiently particular that the appellants would have been able to take issue with the reasonableness of particular portions of the sum claimed.

39    Mr Johnson referred the Court to Annexure A to the Costs Practice Note at [4]:

[T]he amounts claimed are capable of further verification through source material (such as file records, tax invoices and receipts for payment) should such material be required by the Court to be produced.

40    Mr Johnson submitted:

There’s not a scintilla of evidence that there was a request by, for example, the appellants to produce anything more than what was provided to the court. Your Honours, so far as the submissions that were made - and if I might just refer to the paragraph numbers, otherwise they’re set out in my submissions - Ms Castle capably represented Mr Burke at the time and made submissions for Mr Burke commencing at paragraph 18, indicating the general criteria. And we say that there is no challenge in these proceeding to the basis upon which the court would approach the task of determination of a lump sum costs order as highlighted by her Honour.

(transcript p 60 line 43 – p 61 line 3)

41    The evidentiary foundation had been raised by the material produced by Mr Burke, and it was then up to the appellants to produce evidence to contradict that. Mr Johnson submitted that there had been no reversal of the onus as asserted by the appellants. Once the first respondent had established a basis for the exercise of the discretion in its favour, it was a matter for the appellants whether they sought to establish that the costs claimed had been unreasonably incurred within the meaning of the definition of indemnity costs contained in the Rules. No attempt was made by the appellants to do that.

The Official Trustee in Bankruptcy’s submissions

42    With respect to this ground of appeal, the Official Trustee in Bankruptcy’s written submissions were as follows:

12.    The content of this challenge is not particularized. In so far as paragraph [26] of the Appellant’s written submission purports to give content to the challenge, it raises a submission that was not raised in written or oral submissions and not recorded by the primary judge as having been made. [J36-47]. Therefore, it cannot be raised now.

13.    In any event, it is submitted the primary evidence of Mr. Dean relied [on] by the Second and Fourth Respondents was sufficient to discharge any onus those Respondents carried.

43    Mr Heath, appearing for the Official Trustee in Bankruptcy, noted that Mr Coshott had accepted that the material produced before the primary judge by the second respondent was not non-compliant with the Costs Practice Note.

44    Mr Heath adopted the submissions advanced by Mr Johnson that, on the basis of the definitions contained in the Rules, once the lump sum costs applicant had introduced evidence to enliven the Court’s discretion, it fell to the party opposing the application to advance an affirmative case as to why the sum claimed had been incurred unreasonably. Mr Heath submitted that the Costs Practice Note required the lump sum costs applicant to have raw material available at the hearing of the application in order to address any concerns about the costs sought, and that the Official Trustee in Bankruptcy had brought the relevant material to the hearing before the primary judge in order to defend any case advanced by the appellants. No challenge had been advanced and Mr Dean had not been cross examined on his affidavit, which set out a breakdown of the costs claimed.

45    Mr Heath also submitted that the primary judge had discounted the costs awarded in favour of the second respondent with respect to the lump sum costs application (at [75] of the primary judge’s reasons). Her Honour had discounted the amount claimed on the basis that the second respondent was only entitled to the costs of that application on a party and party basis, rather than on an indemnity basis, as they had been incurred after the making of the indemnity costs order in December 2016. Her Honour reduced the costs by one third, “in line with the reduction applied to that component of costs claimed by Mr Prentice. That is a reasonable reflection of the party-and-party solicitor costs given the work undertaken and the hourly rate charged”.

Consideration

46    It is clear from the definition contained in the Rules that costs ordered on an indemnity basis include all costs incurred by the successful party, apart from those “shown by the party liable to pay them to have been incurred unreasonably”. It is not the case that the lump sum costs applicant bears the onus of particularising and adducing evidence as to each item claimed. To require a costs applicant to do so would be to replicate the process of a taxation of costs.

47    The Court accepts the submissions put by the appellants that a respondent faced with a Costs Summary that does not identify with precision each item that is claimed necessarily encounters some difficulty in establishing the reasonableness of those items with the same precision as in a taxation. However, in adopting the ‘broad-brush’ approach to quantification of lump sum costs orders, the Court accepts that the benefits of the process (timeliness and avoidance of costs incurred on contested taxation) outweighs loss of absolute accuracy in the outcome.

48    The Court has had regard to following paragraphs of the Costs Practice Note, which relate to the making of lump sum costs orders:

Material in support

4.10    Unless the Court otherwise directs, no formal application for a lump-sum costs order is required. However, in cases where a lump-sum costs procedure is to take place, the Costs Applicant should file an affidavit in support of the lump-sum claim (“Costs Summary”) in accordance with the timetable set by the judge. The Costs Summary should succinctly address the relevant matters set out in Part B of “Annexure A - Guide for Preparing a Costs Summary” and must also verify the matters set out in Part A of Annexure A.

4.11    The Costs Summary must be clear, concise and direct and not resemble a bill of costs in taxable form, nor should it contain submissions on the law. The intention of the lump-sum costs procedure is to streamline and expedite the determination or resolution of the quantum of costs question and not to replicate the taxation process.

4.12    Unless leave is given by the Court in advance of filing, the Costs Summary must not exceed 5 pages in length (omitting formal parts) or, in large or complex cases, no more than 10 pages. The Costs Applicant is not required to exhibit to the Costs Summary the source material verifying the costs and disbursements claimed. However, such material must be available at the costs hearing.

Material in Response

4.13    The Costs Respondent may file an affidavit responding to the matters raised in the Costs Summary (“Costs Response”) in accordance with the timetable set by the judge.

4.14    Any Costs Response must be clear, concise and direct and briefly summarise the categories of any disputes arising in respect of the Costs Summary. The summary should not resemble formal costs objections (as prepared for a taxation of costs) nor contain submissions on the law. The Costs Response should make clear which of the costs issues arising from the Costs Summary are in dispute and which are not, and should not exceed 4 pages in length (omitting formal parts) or, in large or complex cases, no more than 8 pages.

49    The primary judge set out the evidence produced on behalf of Mr Burke as follows:

15    Mr Burke relies on an affidavit sworn by James Tom Johnson, barrister, on 24 February 2017 in support of his claim for a lump sum costs order.

16    Mr Johnson was admitted to the Bar in 1991, having previously practised as a solicitor. He acted for Mr Burke in this proceeding on the basis of a direct access brief. With the exception of the hearing of the application for a gross sum costs order, at which Ms Castle of counsel appeared on Mr Burke’s behalf, Mr Johnson is the only person who has acted for Mr Burke and who has carried out the work the subject of Mr Burke’s claim for a lump sum costs order.

17    Relevantly Mr Johnson gives the following evidence:

(1)    he refers to his fee disclosure and costs agreement dated 22 October 2015 and addressed to Mr Burke. He also refers to two itemised tax invoices addressed to Mr Burke, one being a disbursements-only tax invoice for a filing fee of $465 inclusive of GST and the other being for all attendances undertaken by Mr Johnson on behalf of Mr Burke in a total sum of $82,165.21 inclusive of GST, which are annexed to the submissions that were filed on behalf of Mr Burke;

(2)     he has considered the Court’s National Guide to Counsel Fees issued 28 June 2013 (Guide to Counsel Fees) and believes that the rates and charges that he seeks to recover from Mr Burke are at the upper end of, but within, the range included therein, excluding GST;

(3)    he believes that there were economies achieved in the way the work was performed by him on behalf of Mr Burke because he had advised Mr Burke in his capacity as trustee of the estate of Robert Gilbert Coshott, including in a proceeding in the Supreme Court of New South Wales which was brought by Fewin, Ronald Coshott and Ljiljana Coshott on substantially the same grounds as were articulated in this proceeding;

(4)    at a time when he was also instructed to act for Mr Prentice the costs were apportioned by arrangement so that they were incurred jointly on behalf of Mr Burke and Mr Prentice on the basis of a 50/50 apportionment;

(5)    there is no component in his bill of costs for “skill, care and responsibility” as that is included in his hourly rate identified in the costs agreement;

(6)    Mr Burke has and will incur further costs from those included in the tax invoices that have been rendered in a total amount of $2,750 inclusive of GST; and

(7)    the total amount of Mr Burke’s present and future costs is $84,280.21 inclusive of GST.

50    The costs agreement between Mr Burke and Mr Johnson, as well as the two itemised invoices (one for a single filing fee and one for legal costs incurred) were not annexed to Mr Johnson’s affidavit, but had been attached to submissions filed by Mr Johnson on behalf of Mr Burke on 15 December 2016.

51    The Court is not satisfied that the appellants have identified any appealable error in her Honour’s acceptance of that evidence as establishing the quantum of costs incurred. The affidavit of Mr Johnson does not appear to fall short of what is required of a Costs Summary given that, as set out at [4.12] of the Costs Practice Note, the costs applicant is not required to exhibit to the affidavit source material verifying the costs and disbursements claimed. In any event, those source materials had been made available as annexures to Mr Johnson’s submissions.

52    If we are wrong in that regard, we are not satisfied that any deficiency in the material before the primary judge would result in appealable error in her Honour’s reasoning. The Court’s practice notes do not have the status of legislation; they are not equivalent to the FCA Act or the Rules. Practice Notes do not bind the judicial discretion of an individual judge. Furthermore, there is no requirement that a judge explicitly articulate that non-compliance with a practice note will be overlooked.

53    In circumstances where the appellants had had the opportunity to be heard with respect to the costs claimed but had declined to do so, it was open to and appropriate for the primary judge to make the orders sought.

54    Once the discretion to award costs in a lump sum was enlivened, and the lump sum costs applicants had produced, by way of affidavit, evidence as to the costs that were incurred, it was incumbent on the appellants to challenge that evidence.

55    The practical consequence of the definition contained in the Rules is that, once an evidentiary foundation is laid by a lump sum costs application, it is for the respondent to that application to put in issue the reasonableness of the costs claimed. The primary judge did not reverse the onus of proof.

56    Even if the Court were to accept the proposition put by Mr Coshott that there was an evidentiary onus on the lump sum costs applicant to satisfy the Court of the reasonableness of the costs claimed, such a conclusion would be purely academic in this appeal. The appellants did not tender evidence. No “Costs Response” was filed. Nor did they cross-examine either Mr Dean or Mr Johnson on the contents of their respective affidavits. The appellants were ably represented by both junior and senior counsel. No attempt was made before the primary judge to establish that the costs claimed were unreasonably incurred.

57    Ground 6 as against the first respondent and Ground 3 as against the second respondent have not been made out.

Ground 4 as against the Official Trustee in Bankruptcy

58    This ground of appeal asserts that the primary judge erred in “entertaining an application by the Second Respondent for lump sum costs contrary to consent orders/an agreement reached between the appellants and the Second Respondent”.

The appellants’ submissions

59    The appellants’ submissions with respect to the Official Trustee in Bankruptcy are set out beneath the heading “Second Respondent and generally”. Relevantly to this ground, they submit:

Settlement of proceedings

12.    On 12 December 2016, her Honour Justice Markovic made orders in the substantive proceedings that the Applicants pay the Second Respondent’s costs as agreed or taxed on a party and party basis.

13.    These orders were made by consent between the Applicants and the Second Respondent following an accord reached by the respective parties’ legal representatives.

14.    The Applicants contended that the terms in relation to the payment of costs represented a settled agreement between the parties and the Second Respondent was not entitled to bring a fresh application in respect of the payment of those costs which would, if successful, have the effect of changing the import of that agreement.

15.    The prospect of a lump sum costs application was not raised by the parties at the time the consent orders were agreed upon and does not reflect the agreement struck.

…

Generally

26.    Claimants bear the onus of proof that the indemnity principle (Oshlack v Richmond River Council [1998] 193 CLR 72) has been complied with. … [leave not granted] … Her Honour erred in awarding lump sum costs to the Official Trustee and/or the Inspector-General. The material relied upon by the claimants did not make clear who was liable for and had paid the costs claimed.

60    Mr Coshott made oral submissions that as the 13 December 2016 orders were entered into by consent, they should not be altered by the Court “except in certain specific circumstances such as fraud or otherwise” (transcript p 51 lines 2-3). Mr Coshott submitted that, having agreed to the earlier costs orders, the Official Trustee in Bankruptcy could not then seek alternative orders. Mr Coshott submitted that there was a “prohibition” on the Official Trustee in Bankruptcy that prevented the making of an application for lump sum costs in breach of that agreement.

The Official Trustee in Bankruptcy’s submissions

61    The written submissions filed on behalf of the Official Trustee in Bankruptcy with respect to Ground 4 are as follows:

15.    This ground and the written submission alleges that the primary judge entertained a lump sum costs application in circumstances where orders disposing of the proceedings including an order for costs was entered into by consent.

16.    This ground has no merit. The primary judge set out the circumstances in which the application for a lump sum costs order was made at J46 and noted the following in respect of the ground of appeal (and submission) now advanced which was also put forward to the primary judge:

“…the applicants withdrew their reliance on the second issue in light of the judgments in Short v Crawley (No 45) [2013] NSWSC 1541 (Short v Crawley) (per White J) and Hudson v Sigalla [2016] FCA 1204 (Hudson) (per Katzmann J).

17.    In light of what is set out by the primary judge, it is not now open to the Appellants to agitate this ground of appeal.

18.    Further, no evidence or submission was made to the primary judge that the terms of the consent orders were or included any agreement that precluded the Official Trustee from later making a lump sum costs application.

62    Mr Heath submitted that the making of consent orders that costs be taxed did not preclude the third respondent from making an application for lump sum costs, referring the Court to [57] of the primary judge’s reasons:

57    The applicants contended that the terms in relation to the payment of costs as between them and the Official Trustee “represented a settled agreement between the parties”. The applicants did not say whether there is an express or implied term of any agreement to the effect that the Official Trustee “is not entitled to bring a fresh application in respect of the payment of those costs” and, if so, how that term arises. The applicants submitted that the orders, including the costs order, were made by consent to resolve the proceeding and that the Official Trustee was not entitled to come back and, in effect, ask for more. But the Officinal Trustee is not asking for more. The application for lump sum costs order is an application by which the Official Trustee’s costs the subject of the order previously made may be quantified. As the Court has recognised, an application for lump sum costs is simply a different method of implementing an earlier order for costs. In my opinion, despite the order being made by consent, there is nothing in its terms that prevents the application now being made.

63    Mr Heath assented to the proposition from the bench that his submission was that, if the appellants’ intention was to exclude the making of a lump sum costs order, then that should have been explicit in the terms of the consent orders. Mr Heath did not accept that the only way to, in effect, vary the consent orders setting the manner of assessment was by a further consent position reached as between the parties. Mr Heath relied on [46] and [56] of the primary judge’s reasons in support of his position in that regard:

46.    In relation to the Official Trustee the applicants submitted that there was no judicial determination of the proceeding as between them and the Official Trustee. They submitted that the orders made on 12 December 2016 were by consent, constituting an agreement between the parties to resolve the proceedings on the terms reflected in the orders. That being so, the applicants submitted that the grounds on which the Court can set aside or vary the orders are limited as set out in r 39.05 of the Rules. Initially, the applicants submitted that the circumstances in which the orders were made gave rise to two issues: first, because the orders finally resolved the proceedings as between the applicants and the Official Trustee, there would need to be a variation of them to allow for a lump sum costs order; and, secondly as the costs were ordered to be paid as “agreed or taxed”, the lump sum costs order sought by the Official Trustee was directly contradictory to that order. They submitted that the lump sum costs order sought was not a supplemental order or an order of a mechanical nature required to give effect to the order that was made. However, the applicants withdrew their reliance on the second issue in light of the judgments in Short v Crawley (No 45) [2013] NSWSC 1541 … (per White J) and Hudson v Sigalla [2016] FCA 1204 …(per Katzmann J).

…

56.    The orders made to conclude the proceeding as between the applicants and the Official Trustee included an order made by consent that the applicants pay the Official Trustee’s costs as agreed or taxed. That order has been entered. There is no issue between the parties that a lump sum costs order is in the nature of a supplemental order that can be made in aid of and as an alternative mode of enforcing a costs order made earlier in the proceeding and that the Court has the power to make such an order: see Short v Crawley at [27]-[313] and Hudson at [51]-[58].

64    Mr Heath relied on the decision of Short v Crawley (No 45) [2013] NSWSC 1541 (Short) and asserted that the appellants do not dispute the correctness of that decision.

65    In summary, Mr Heath submitted that an application for lump sum costs is just a different way of achieving the purpose of the consent orders, which is that the appellants are liable for the third respondent’s costs. Mr Heath adopted the primary judge’s description (at [57]) of the application as “simply a different method of implementing an earlier order for costs.”

Consideration

66    The case of Short relied on by Mr Heath dealt with a similar circumstance. The plaintiffs sought a lump sum costs order following orders that costs be awarded as assessed or agreed. His Honour White J considered whether the plaintiffs were precluded from applying for lump sum costs by the making of those previous orders. His Honour reasoned:

26    The costs orders made in this case did not determine any claim for an order that the plaintiffs be entitled to a specified gross sum for costs instead of assessed costs. …

27    I accept Mr Ogborne's submission that if a gross sum costs order were made the previous costs orders would be varied. But the variation would not be as to the substance of the order, that is, as to the extent of the defendants’ liability to pay costs. The variation would only be as to the mode of quantifying what sum of money was payable pursuant to the costs orders. To that limited extent a gross sum costs order would vary all of the costs orders pursuant to which costs are to be assessed either on the ordinary basis or, in relation to the costs of the cross-claim, on the indemnity basis. The variation would not be in respect of a claim for relief or of any question arising on a claim for relief that has been determined.

28    … [I]n making a gross sum costs order a court endeavours within the constraints of a summary procedure not involving a detailed assessment to make a logical, fair and reasonable estimate of what sum is payable under the costs order (Harrison v Schipp [2002] NSWCA 213; (2002) 54 NSWLR 738 at [22]). That is, the making of a gross sum costs order would provide a different mode of assessment than provided for by the existing orders, but would not otherwise vary the orders. It would not involve a variation of the claim for costs that was determined by the costs orders that were made.

29    Different modes of expression have been adopted when gross sum costs orders are made after an earlier costs order was made whose effect was that costs be assessed or taxed. Sometimes it is ordered that the gross sum be paid “instead of” assessed costs (e.g. Harrison v Schipp; Simone Starr-Diamond v Talus Diamond (No. 4) [2013] NSWSC 811). Sometimes it is ordered that the gross sum be paid “in respect of” the costs previously ordered (e.g. Levy v Bablis [2012] NSWSC 661; Olivaylle Pty Ltd v Flottweg GMB & Co KGAA (No.6) [2011] FCA 688). Sometimes it has been ordered that the gross sum be paid “pursuant to” the costs order previously made (e.g. Beach Petroleum NL v Johnson (No. 2) (1995) 57 FCR 119; Salfinger v Niugini Mining (Aust) Pty Ltd (No. 5) [2008] FCA 1119). These differences of expression do not connote any difference in substance. Each of the expressions is correct. The gross sum is paid pursuant to the previous costs order and in respect of the previous costs order and is payable instead of assessed costs. Whilst the original costs order is thereby varied, it is not varied in respect of the matter that was the subject of determination when the order was made. Rule 36.16(3) confers power to vary the previous costs orders by substituting an order for payment of a gross sum instead of a sum determined by an assessment.

67    His Honour held that the making of a gross sum costs order does not infringe the principles of finality of judgments (at [30]). His Honour’s conclusion that such an order is supplemental to an earlier costs order and provides an alternative method of enforcing the relief was applied in this Court by Katzmann J in Hudson v Sigalla [2016] FCA 1204.

68    Mr Coshott therefore requires this Court to distinguish the decision in Short on the basis that the initial orders made in that case were not agreed between the parties by consent, although no such submission was advanced at the hearing of this appeal. We see no reason to do so.

69    The lump sum costs orders made by the primary judge were clearly supplementary orders. Those orders did not have any substantive effect to alter the Official Trustee’s right to recover its costs, or the appellants’ liability to pay those costs. The orders merely altered the method by which that outcome was to be effected. It is evident that her Honour was cognisant of this in her phrasing of the orders as “… the costs of the second respondent payable by the applicants pursuant to Order 2 made on 12 December 2016 be fixed in the sum of $63,865” (emphasis added). Her Honour’s reference to the costs payable under the previous orders indicates that the earlier costs orders were not varied as to the substance of the relief that they awarded to the Official Trustee in Bankruptcy.

70    We reject Mr Coshott’s submission that the consent orders constituted some kind of binding agreement containing a term that would prevent the Official Trustee from applying for lump sum costs.

71    Ground 4 as against the Official Trustee in Bankruptcy is dismissed.

Ground 1 as against Maxwell William Prentice

72    What remains of this ground of appeal is that the primary judge “erred in fixing lump sum costs in the amount of $189,888.00 in favour of the third respondent as the indemnity principle was not satisfied. All invoices were issued by Gillis Delaney and Sally Nash & Co. to Anteres [sic] Managing Agency Limited which paid same.”

The appellants’ submissions

73    The appellants’ written submissions with respect to the third respondent are as follows:

27.    Mr Dale’s affidavits refer to (and annexed invoices for legal work carried out by his firm (Gillis Delaney) and counsel which purported to relate to the substantive proceedings. These invoices are addressed to “Antares Managing Agency Limited” which Mr Dale understood to be the Third Respondent’s professional indemnity insurer which he further understood had agreed to indemnify the Third Respondent in respect of these proceedings arising out of a specific insurance policy.

28.    The policy itself was not provided and its relationship to an insurable event pleaded against the Third Respondent is unexplained. In circumstances where the Applicants were not in a position to investigate the purported insurer’s relationship with Mr Prentice and any attendant costs liability, it is contended that the Court was unable to be satisfied that the indemnity principles have been complied with and a lump sum costs order was therefore inappropriate.

29.    Paragraph 4.10 of the Costs Practice Note required the costs applicant to file an affidavit in support of the lump-sum claim addressing the matters set out in Part B of “Annexure A – Guide for Preparing a Costs Summary” and also verify the matters set out in Part A of Annexure A. The Third respondent filed affidavits which did not address all the matters set out in Part B Annexure A, in particular, any special features of the case which may impact the assessment of costs or any other relevant and important matters not previously mentioned. The Third respondent appears not to have paid or have any liability for Gillis Delaney’s costs and disbursements. The Tax Invoices are addressed to a third party. It appears that this third party has paid Gillis Delaney. Thus, Mr Prentice has no liability for the costs claimed. The Court, on the evidence before it could not be satisfied that the indemnity principle/rule had been complied with (Oshlack v Richmond River Council [1998] HCA 11; 193 CLR 72; 152 ALR 83; 72 ALJR 578). Her Honour erred in awarding lump sum costs to the Third Respondent.

74    Mr Coshott made oral submissions that it was incumbent for the costs applicant to have complied with the Court’s Practice Note and to satisfy the indemnity principle. Mr Coshott submitted that none of the material that was before the primary judge had been capable of satisfying the Court that the indemnity principle was satisfied.

75    Mr Coshott submitted that her Honour’s conclusion at [68] that Mr Prentice was indemnified by Antares but was primarily liable for his solicitor’s costs was an assumption. The affidavits of Mr Dale did not establish Mr Prentice’s liability for his solicitor’s costs at the relevant time. The affidavits establish that Antares was invoiced for those costs (at its request), and it subsequently paid them. Mr Coshott submitted that the costs applicants could have produced the policy of insurance to establish that there had been a relevant agreement between Antares and Mr Prentice and to show that there was a right of subrogation. Mr Coshott did not submit that Antares had been a volunteer, but that it was incumbent on Mr Prentice to establish that it was not.

76    He submitted that the requirements of the Costs Practice Note had not been satisfied, and there was insufficient evidence before the primary judge for her Honour to have been satisfied that Mr Prentice was liable for his legal costs. Mr Coshott submitted that the third respondent was required to prove his liability under the Costs Practice Note. There was a practical injustice flowing from Mr Prentice’s failure to establish that he was liable for his costs because, if the indemnity principle was not satisfied, there was no entitlement to costs at all. He submitted that on the material before the primary judge, the lump sum costs application should have been dismissed and costs should have been assessed. Alternatively, he submitted, her Honour ought to have explicitly dispensed with the requirement to comply with the Practice Note.

Mr Prentice’s submissions

77    In his written submissions, Mr Prentice contended that this ground of appeal (in its original form) had not been raised before the primary judge; that it challenged a finding of fact by the primary judge for “which there was cogent and adequate evidence for her Honour to make”; and that, even if the fact for which the appellants contend is correct, there would be no error in the primary judge’s determination.

78    Relevantly to this ground of appeal as it remains, Mr Prentice submits:

19.    The basis upon which the third respondent made his claim for costs was that what [sic] he was required to persuade the Court that the circumstances were appropriate for the making of a lump sum order and that, if they were, the third respondent was required to prove that:

a.    he had a liability to pay legal costs (the “liability proposition”), and

b.    that the quantum of costs he had been charged was fair and reasonable (the “quantum proposition”).

20.    In support of his claim the third respondent read three affidavits filed by his solicitor, Nicholas Anthony James Dale, partner of Gillis Delaney Lawyers, supported by written submissions in chief and in reply. The affidavits were read without objection and Mr Dale was not cross-examined.

21.    The evidentiary basis of the liability proposition was established by Mr Dale’s evidence, which was not objected to and which included, in particular:

a.    Copies of costs agreements between Mr Prentice and O’Neill Partners Commercial Lawyers Incorporating Sally Nash & Co, who had acted for Mr Prentice in the early part of the proceedings;

b.    Copies of costs agreements between Mr Prentice and Gillis Delaney;

c.    Copies of the costs agreement between Mr Johnson and Gillis Delaney;

d.    Copies of the costs agreement between Ms Castle of counsel and Gillis Delaney;

e.    Invoices issued by O’Neill Partners, Gillis Delaney, Mr Johnson and Ms Castle, which were addressed to Antares Managing Agency (Antares). Mr Dale deposed that he understood that Antares had agreed to indemnify the third respondent pursuant to an insurance policy.

22.    Mr Dale also deposed to the fact that the invoices issued by O’Neill Partners and Gillis Delaney had been paid, by Antares Managing Agency Limited.

79    Ms Castle, appearing as counsel for Mr Prentice, made oral submissions as follows:

…[I]n relation to the indemnity principle, the third respondent says that the appellants have proceeded under a misapprehension as to the correct identification and articulation of that principle in costs law. The argument of the appellants has proceeded on the basis that the third respondent had to establish that there was a valid contractual entitlement or contractual obligation between Mr Prentice and his insurer. And the submission I make is that that is a misapprehension and that the cost indemnity principle, properly understood, is that a litigant cannot recover more under a party/party order for costs, than the amount for which he is liable to his lawyers, principally to his solicitor.

…[A]ny arrangement between a client and a third party: be it an insurer, be it a union, be it a volunteer or a benefactor is of no relevance to the obligation of the party ordered to pay costs. That can be demonstrated by assuming the following: what if Antares had accepted that it had an obligation of indemnity but at some later time decided it had made a mistake and decided to attempt to recover the money. Would that relieve Mr Prentice of his obligation to pay Gillis Delaney? The submission I make is, no. Likewise, had a benefactor or a volunteer come to Mr Prentice and said, “I feel sorry for you. Let me pay the invoices that have been issued by your solicitor”, would that change Mr Prentice’s primary liability to pay his solicitors? The answer, we say, is no.

And her Honour, in her judgment to which I will take the court, speaks of a primary liability. Likewise, in a case that I’ve referred to in my submissions called Coshott v Woollahra Municipal Council [[2008] NSWCA 176] - in which the second appellant in this case was the appellant and appeared before the Court of Appeal - the court says that the arrangements between a successful party under a costs order and a third party, such as an insurer or an insurance-like arrangement, is – Handley JAs words are – “not critical” and the third respondent always put its case on a very simple basis. It put its case – its case was that it was required to establish that Mr Prentice had a liability to pay legal costs to Gillis Delaney and that they then, in turn, had a liability to counsel and that that was all he was required to establish.

(transcript p 68 line 25 – p 69 line 8)

80    Ms Castle took the Court to the submissions that had been advanced by Mr Prentice before the primary judge with respect to the determination of a lump sum costs application. It had been submitted that the Court must first consider the appropriateness of making a lump sum order, and then assess the quantum of the lump sum. With respect to the calculation of the quantum of any lump sum order, Mr Prentice submitted that the starting point is the charges rendered by the costs applicant’s solicitors. It was submitted that the successful party’s liability to pay legal costs must be established.

81    Ms Castle submitted that the third respondent had taken on the burden of establishing liability to pay costs to Gillis Delaney and, for a short period, O’Neill Partners. Ms Castle submitted that invoices were addressed to Antares Managing Agency, the third respondent’s professional indemnity insurer, at its request. Ms Castle referred the Court to affidavit material that had been before the primary judge deposing to that effect. Ms Castle submitted that the appellants could have issued notices to produce or subpoenas with respect to the indemnity agreement between Mr Prentice and Antares; asked the Court to direct Mr Dale to produce information; or (most logically in Ms Castle’s submission) cross-examined Mr Dale on the existence and nature of the indemnity agreement. Ms Castle submitted that the appellants “availed themselves of none of those opportunities” (transcript p 70 lines 7 – 8).

82    Ms Castle submitted that Mr Prentice’s liability to pay legal costs was established before the primary judge by the costs agreements between Mr Prentice and each of O’Neill Partners, Gillis Delaney, Mr Johnson of counsel and Ms Castle of counsel:

What is required is for the court to be satisfied that the third respondent was liable to pay legal costs. This is established by the costs agreements of O’Neill Partners, Gillis Delaney, Mr Johnson of counsel and Ms Castle of counsel. The O’Neill Partners’ costs agreements and the Gillis Delaney costs agreements are directed to the third respondent. Both bind him to pay costs and disbursements including barristers’ fees. Mr Johnson’s and Mr Castle’s costs agreements are directed to Gillis Delaney. These costs agreements establish that the successful party, the third respondent, was liable to pay legal fees. A liability to pay legal fees by the successful party is all that is required to satisfy the indemnity rule. The cases there are cases to which I will take your Honours and the second one, eInduct v 3D Safety Services [[2015] NSWCA 284 per Basten JA] is a case which your Honour relied on. But the third respondent then went on to submit in paragraph 4:

The fact that the third respondent held a policy of insurance that responded to the claims made by the applicants, is irrelevant.

The policy of insurance would be irrelevant and inadmissible as evidence in the circumstances and the suggestion that the third respondent’s evidence is inadequate in that regard is rejected. And so the ground was clearly drawn that the third respondent considered that it had a burden to establish that he was liable to pay legal fees and that any arrangement which might enter into the situation in relation to an insurer, was irrelevant to his entitlement. The relevance of it in Mr Dale’s affidavit was simply to explain why, when Mr Prentice was liable to pay Gillis Delaney, the invoices were directed to be reissued and addressed to Antares Managing Agency and also that payments came from that source.

(transcript p 70 line 26 – p 71 line 3)

83    Ms Castle accepted that the third respondent had not recited the words in subparagraphs (a), (b) and (c) of paragraph 3 of Part A of Annexure A to the Costs Practice Note, which are in the following terms:

The deponent must verify the following in the Costs Summary, that:

…

3.    In the Costs Summary:

(a)    the Costs Applicant is not claiming more than the Costs Applicant is liable to pay for costs and disbursements;

(b)    the calculations made are correct;

(c)    the matters noted are a fair and accurate summary of the costs and disbursements that the Costs Applicant is entitled to claim, …

84    Ms Castle submitted that Mr Dale’s opinion with respect to 3(a) and (b) would have been opinion evidence and arguably inadmissible. She submitted that a different reading of the Costs Practice Note is that, as it requires an affidavit, the next logical step is to say that it must be in admissible form and, as opinion evidence is not admissible, what is actually required by the Practice Note is evidence. Mr Prentice had produced such evidence establishing liability to pay costs, being copies of the costs agreements, which were annexed to the affidavit of Mr Dale that was before the primary judge. The appellants had not objected to the tender of that affidavit, nor had they cross-examined Mr Dale on its contents.

85    Ms Castle submitted that the third respondent had taken the view that it was not required to establish the terms of the arrangement between himself and his insurer. Ms Castle submitted that all that is required to satisfy the indemnity rule is that the lump sum costs applicant is liable to pay its legal fees, citing the decision of Wentworth v Rogers [2006] NSWCA 145; 66 NSWLR 474 (Wentworth) per Basten JA at [102] in support.

86    Ms Castle submitted that the practical consequence of the indemnity arrangement is that the third respondent will not be entitled to keep any money received as a result of the lump sum costs order; it will be repaid to the insurer. There is therefore no risk of unjust enrichment or double recovery, “which is the ill that the costs indemnity principle seems to be aimed at ensuring does not occur” (transcript p 77 lines 7-10).

87    With respect to the appellants’ contentions as to the Costs Practice Note, Ms Castle submitted that there was no practical injustice occasioned by any non-compliance (which the third respondent did not concede), and that Mr Coshott’s submission sought to elevate compliance with a practice note to a precondition to the exercise of the Court’s jurisdiction, which could not be correct. Ms Castle submitted that the Costs Practice Note does not require invoices or source materials to be exhibited to the affidavits. Ms Castle submitted that, in producing the relevant costs agreement, Mr Prentice had provided more than was required by the Practice Note.

88    Ms Castle submitted that the appellants were represented by both senior and junior counsel, and the hearing of the application proceeded for the best part of a day. The appellants had ample opportunity to challenge the evidentiary basis that was put on by the third respondent and made a forensic decision not to do so.

Consideration

89    The indemnity rule operates to allow a successful party to recoup the legal costs it has incurred in pursuing its legal rights. The core requirement of the indemnity principle is that the successful party has a legal liability to pay its costs: see Oshlack v Richmond River Council [1998] HCA 11; 193 CLR 72.

90    It is well established that the fact that a successful applicant is indemnified against liability to pay its legal costs is not inconsistent with the indemnity rule: New Pinnacle Group Silver Mining Co v Luhrig Coal and Ore Dressing Appliances Co (1902) 2 SR (NSW) 50 at 56-57 per Walker J; McCullum v Ifield [1969] 2 NSWR 329 at 330 per Taylor J; North Australian Aboriginal Legal Aid Service Inc v Bradley (No 2) [2002] FCA 564 at [102] to [104] per Weinberg J; Coshott v Woollahra Municipal Council [2008] NSWCA 176 at [11] per Handley AJA and Cristovao v Tan & Tan Lawyers Pty Ltd [2018] FCAFC 41 at [28] to [44].

91    There is no requirement at law that an insured costs applicant produce to the Court the contract of insurance in order to satisfy the indemnity principle. The affidavits of Mr Dale which were before the primary judge deposed to the fact that Antares was Mr Prentice’s indemnity insurer. No objection was taken by the appellants as to the admissibility of those affidavits. No challenge was made to the assertion that Antares was Mr Prentice’s insurer. The appellants did not seek to require Mr Prentice to produce the indemnity agreement or otherwise prove its existence.

92    We are not satisfied that the Costs Practice Note is to be understood as requiring an insured costs applicant to produce any contract of insurance in order to establish the existence of such a contract. In that regard, we have considered [3.16] of the practice note:

3.16    Equally, a party should never seek to obtain a windfall from any costs process. A fundamental principle of the law relating to costs is that the amount of costs recovered by a party in whose favour the costs order is made must not exceed the amount of costs for which the Costs Applicant is liable (otherwise generally known as the “indemnity principle”). To this end, a lawyer or costs consultant (with a practicing certificate) must verify, among other things, the accuracy of the claim for costs and compliance with the indemnity principle.

(Emphasis added.)

93    The effect of that paragraph, when read in conjunction with [4.10] to [4.14] of the Costs Practice Note, is that it is sufficient for a costs applicant to provide an affidavit verifying that he or she was insured, and to make source material establishing that available at the hearing of the lump sum costs application, if required.

94    The Court has had regard to Wentworth at [102] and [126] per Basten JA and eInduct Systems Pty Ltd v 3D Safety Services Pty Ltd [2015] NSWCA 284; 90 NSWLR 451 at [24] to [26] per Basten JA and [108] per Simpson JA.

95    Having regard to the principles articulated in those cases, we accept the submissions advanced by Ms Castle on behalf of Mr Prentice that what is required is that the Court be satisfied that the costs applicant is liable to pay his or her legal costs and that, in the present case, liability was established by the provision of the various costs agreements as annexures to the three affidavit of Nicholas Dale. Mr Dale deposed that he had been advised by Antares’ solicitors that Antares would indemnify Mr Prentice for his legal costs (at [45] of Mr Dale’s 19 December 2016 affidavit). We are satisfied that the content of that affidavit is sufficient to satisfy [3.16] of the Costs Practice Note.

96    Although the appellants’ submissions before the primary judge raised the issue of satisfaction of the indemnity principle, the appellants made no call for the source material, being the insurance agreement, at the hearing of the application.

97    This ground of appeal is not made out and must be dismissed.

Costs

98    The appellants having failed on all grounds, it follows that they should pay the respondents’ costs.

99    At the hearing of this appeal, Mr Heath sought lump sum costs orders with respect to the Official Trustee in Bankruptcy and the fourth respondent (the Inspector-General in Bankruptcy), against whom no grounds of appeal remain in consequence of our decision in Coshott No 1.

100    The Court will grant each party seven days from the date of this order to file and serve submissions limited to two pages on the appropriateness of making lump sum costs orders, and for the first to fourth respondents to file and serve a Costs Summary setting out the lump sum costs claimed. The appellants will have a further seven days within which to file and serve a Costs Response.

Associate:

Dated:    25 May 2018

SCHEDULE OF PARTIES