Federal Court of Australia

Cappello v Homebuilding Pty Ltd (formerly known as Hammond & Simonds NSW Pty Ltd) (No 2) [2023] FCA 1205

ORDERS

THE COURT ORDERS THAT:

1.    The certificate of taxation issued on 23 June 2023 be varied by substituting $40,638.53 for $41,431.48.

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

REASONS FOR JUDGMENT

KATZMANN J:

Introduction

1    This is an application for review of the taxation (by a Registrar of the Court) of a bill of costs in the amount of $41,431.48.

2    The costs relate to an application to set aside a bankruptcy notice, filed by Rosario and Maria Cappello (the Cappellos) in May 2021, heard and dismissed in August 2021 (the proceeding): Cappello v Homebuilding Pty Ltd (formerly known as Hammond & Simonds NSW Pty Ltd) [2021] FCA 981. The bankruptcy notice was issued by Homebuilding Pty Ltd after the Cappellos failed to pay a judgment debt. Homebuilding presented creditor’s petitions based on their failure to comply with the bankruptcy notice but on 19 July 2022 the Cappellos were found to be solvent and the petitions were dismissed with no order as to costs: Homebuilding Pty Ltd v Cappello [2022] FedCFamC2G 576.

3    The Cappellos seek orders setting aside the certificate of taxation, issued on 23 June 2023, and any judgment entered on the basis of the certificate (it appears that there is no such judgment), and ask the Court to order that a certificate of taxation be issued in the amount of “NIL”. They also seek orders that Homebuilding pay the costs of the taxation and of this review.

4    The basis for the challenge is that Homebuilding has not proved that its lawyers complied with s 174 of the Legal Profession Uniform Law (NSW) (Uniform Law), “enliven[ing] the prohibition in section 178”, and therefore Homebuilding is not liable to pay its solicitors and any claim that those costs be paid by the Cappellos does not satisfy the indemnity principle. In the alternative, the Cappellos rely on their objections to the bill of costs and the submissions they made on the taxation.

5    For the reasons that follow, the challenge is misconceived. Even if the lawyers did not comply with s 174 of the Uniform Law, non-compliance does not have the effect of preventing the lawyers from recovering their taxed costs. Nevertheless, the certificate of taxation ought to be varied because of Homebuilding’s inability to prove that a number of items in their bill of costs were reasonably incurred.

The nature of the review

6    The relevant rules appear in Pt 40 of the Federal Court Rules 2011 (Cth) and, in particular, Div 40.2.

7    Rule 40.34(1) provides that a party who attended a taxation may apply to the Court for a review of the taxation and any consequential orders. But on such an application a party is not permitted to raise any ground of objection or any response to an objection not taken in the party’s notice filed in the taxation: r 40.34(3). And “[n]o further evidence will be received on the review”: r 40.34(6). The Court may call for a written report from the taxing officer: r 40.34(5). Here, however, no request for a report was made and none was called for.

8    A review of a taxation of costs undertaken by a Registrar is a review de novo in which, like a hearing de novo, the matter must be heard afresh: Cassimatis v Australian Securities and Investments Commission [2016] FCA 131; 334 ALR 350 at [8]–[12] (Edelman J) and the authorities referred to there. Nevertheless, “there is no warrant for arguments that the court might not recognise the discretion exercised by a registrar on the basis that in a de novo review the ‘party succeeding below enjoys no advantage’…: Cassimatis at [13].

9    The note to r 40.34 (which, by virtue of s 13(1) of the Acts Interpretation Act 1901 (Cth) read with s 13 of the Legislation Act 2003 (Cth), is part of the Rules) provides that:

The Court may exercise all of the powers of the taxing officer in relation to the items under review and may make any other orders, including altering the certificate of taxation or remitting an item to the same or any other taxing officer for taxation.

10    Review on a question of quantum alone is exceptional: Cassimatis at [4], citing Australian Coal and Shale Employees’ Federation v The Commonwealth (1953) 94 CLR 621 at 628 in which Kitto J adopted the following summary of the law on reviews of decisions of taxing officers given in Schweppes’ Ltd v Archer (1934) 34 SR (NSW) 178 at 183–4:

The Court will always review a decision of a Taxing Officer where it is contended that he has proceeded upon a wrong principle, for the purpose of determining the principle which should be applied; and an error in principle may occur both in determining whether an item should be allowed and in determining how much should be allowed. Where no principle is involved, and the question is, whether the Taxing Officer has correctly exercised a discretion which he possesses and is purporting to exercise, the Court is reluctant to interfere. It has undoubted jurisdiction to review the Taxing Officer’s decision even where an exercise of discretion only is involved, and will do so freely on a proper case, using its own knowledge of the circumstances… but it will in general interfere only where the discretion appears not to have been exercised at all, or to have been exercised in a manner which is manifestly wrong; and where the question is one of amount only, will do so only in an extreme case.

The relevant rules governing the taxation

11    The effect of rule 40.01 is that, unless the court otherwise orders, a party with the benefit of a costs order can only recover the costs that have been fairly and reasonably incurred by that party in the conduct of the litigation — in other words, party and party costs: see the heading to r 40.01 and the definition of “costs as between party and party” in the Dictionary in Sch 1 to the Rules.

12    Rule 40.29 relevantly provides that a taxing officer is to allow costs for the work done in accordance with Sch 3 to the Rules.

13    Rule 40.30 deals with costs and fees the taxing officer is not to allow. It provides:

Costs not to be allowed on taxation

A taxing officer is not to allow:

(a)    barrister’s fees on a hearing if the barrister:

(i)    was not present at the hearing for a substantial amount of the relevant period; or

(ii)    did not give substantial assistance in the conduct of the proceeding; and

(b)    costs that in the opinion of the taxing officer have been incurred or increased:

(i)    through impropriety, unreasonableness or negligence; or

(ii)    through overcaution; or

(iii)    by agreeing:

(A)    special fees to counsel; or

(B)    special charges or expenses to witnesses or other persons; or

(iv)    by other unnecessary expense.

14    Rule 40.31 governs the exercise of the taxing officer’s discretion. It provides:

Exercise of taxing officer's discretion

If a party wants a fee, allowance or disbursement that may be allowed in the taxing officer’s discretion, the taxing officer may have regard to the following:

(a)    the nature and importance of the proceeding;

(b)    the amount of the claim;

(c)    the damages, if any, awarded;

(d)    the principle involved;

(e)    the conduct and cost of the proceeding;

(f)    other fees and allowances claimed by the party’s lawyers;

(g)    any other relevant circumstance.

The relevant provisions of the Uniform Law

15    The costs disclosure provisions appear in Pt 4 Div 3 of the Uniform Law.

16    Section 174 is concerned with the obligations of a law practice to disclose legal costs to its clients and s 178 with the effect of non-compliance with those obligations.

17    Section 174 relevantly provides as follows:

Disclosure obligations of law practice regarding clients

(1)    Main disclosure requirement A law practice—

(a)    must, when or as soon as practicable after instructions are initially given in a matter, provide the client with information disclosing the basis on which legal costs will be calculated in the matter and an estimate of the total legal costs; and

(b)    must, when or as soon as practicable after there is any significant change to anything previously disclosed under this subsection, provide the client with information disclosing the change, including information about any significant change to the legal costs that will be payable by the client—

together with the information referred to in subsection (2).

(2)    Additional information to be provided Information provided under—

(a)    subsection (1)(a) must include information about the client’s rights—

(i)    to negotiate a costs agreement with the law practice; and

(ii)    to negotiate the billing method (for example, by reference to timing or task); and

(iii)    to receive a bill from the law practice and to request an itemised bill after receiving a bill that is not itemised or is only partially itemised; and

(iv)    to seek the assistance of the designated local regulatory authority in the event of a dispute about legal costs; or

(b)    subsection (1)(b) must include a sufficient and reasonable amount of information about the impact of the change on the legal costs that will be payable to allow the client to make informed decisions about the future conduct of the matter.

(3)    Client’s consent and understanding If a disclosure is made under subsection (1), the law practice must take all reasonable steps to satisfy itself that the client has understood and given consent to the proposed course of action for the conduct of the matter and the proposed costs.

…

(6)    Disclosure to be written A disclosure under this section must be made in writing, but the requirement for writing does not affect the law practice’s obligations under subsection (3).

…

18    Section 171(1) defines “third party payers” in the following way:

For the purposes of this Law—

(a)    a person is a third party payer, in relation to a client of a law practice, if the person is not the client and—

(i)    is under a legal obligation to pay all or any part of the legal costs for legal services provided to the client; or

(ii)    has already paid all or a part of those legal costs under such an obligation; and

(b)    a third party payer is an associated third party payer if the legal obligation referred to in paragraph (a) is owed to the law practice, whether or not it is also owed to the client or another person; and

(c)    a third party payer is a non-associated third party payer if the legal obligation referred to in paragraph (a) is owed to the client or another person but not the law practice.

19    It is apparent that each of the Cappellos is a “non-associated third party payer” within the meaning of that term in the Uniform Law as they were not clients of the law practice in question and, as a result of the order I made in August 2022, they were under a legal obligation to Homebuilding (and not its lawyers) to pay its legal costs.

20    Section 178 provides:

Non-compliance with disclosure obligations

(1)    If a law practice contravenes the disclosure obligations of this Part—

(a)    the costs agreement concerned (if any) is void; and

(b)    the client or an associated third party payer is not required to pay the legal costs until they have been assessed or any costs dispute has been determined by the designated local regulatory authority; and

(c)    the law practice must not commence or maintain proceedings for the recovery of any or all of the legal costs until they have been assessed or any costs dispute has been determined by the designated local regulatory authority or under jurisdictional legislation; and

(d)    the contravention is capable of constituting unsatisfactory professional conduct or professional misconduct on the part of any principal of the law practice or any legal practitioner associate or foreign lawyer associate involved in the contravention.

(Emphasis added.)

21    Section 172 is also relevant. It provides:

Legal costs must be fair and reasonable

(1)    A law practice must, in charging legal costs, charge costs that are no more than fair and reasonable in all the circumstances and that in particular are—

(a)    proportionately and reasonably incurred; and

(b)    proportionate and reasonable in amount.

(2)    In considering whether legal costs satisfy subsection (1), regard must be had to whether the legal costs reasonably reflect—

(a)    the level of skill, experience, specialisation and seniority of the lawyers concerned; and

(b)    the level of complexity, novelty or difficulty of the issues involved, and the extent to which the matter involved a matter of public interest; and

(c)    the labour and responsibility involved; and

(d)    the circumstances in acting on the matter, including (for example) any or all of the following—

(i)    the urgency of the matter;

(ii)    the time spent on the matter;

(iii)    the time when business was transacted in the matter;

(iv)    the place where business was transacted in the matter;

(v)    the number and importance of any documents involved; and

(e)    the quality of the work done; and

(f)    the retainer and the instructions (express or implied) given in the matter.

(3)    In considering whether legal costs are fair and reasonable, regard must also be had to whether the legal costs conform to any applicable requirements of this Part, the Uniform Rules and any fixed costs legislative provisions.

(4)    A costs agreement is prima facie evidence that legal costs disclosed in the agreement are fair and reasonable if—

(a)    the provisions of Division 3 relating to costs disclosure have been complied with; and

(b)    the costs agreement does not contravene, and was not entered into in contravention of, any provision of Division 4.

The primary challenge

22    Costs are awarded to indemnify (or more accurately, partially indemnify) a successful litigant, rather than to punish an unsuccessful one: Cachia v Hanes (1994) 179 CLR 403 at 410–11 (Mason CJ, Brennan, Deane, Dawson and McHugh JJ); Oshlack v Richmond River Council (1998) 193 CLR 72 at [1] (Brennan CJ). All the indemnity principle means in the present context is that Homebuilding cannot recover more from the Cappellos than the costs it would have been liable to pay its lawyers in the event that I had not ordered the Cappellos to pay its costs.

23    The basis for the challenge, as stated in the Cappellos’ notice of objection, was that Homebuilding did not produce the costs disclosures provided by its lawyers; in those circumstances, the effect of s 178 of the Uniform Law was that Homebuilding had no liability for any costs charged by its lawyers; consequently the indemnity principle was not satisfied and Homebuilding could not recover its costs from the Cappellos.

24    The challenge is not made out.

25    Homebuilding did produce costs disclosures. They were annexed to their notice of response to the notice of objection. The first was dated 12 February 2021 and was emailed to John Re by Homebuilding’s lawyers the same day. The second was dated 5 August 2021 and was emailed to Mr Re that day. The estimated costs disclosed in the updated agreement totalled $40,000, which was very close indeed to the amount determined on taxation.

26    In their submissions on the review the Cappellos acknowledged that costs disclosures were provided by the lawyers but complained that:

(1)    the first disclosure was made three months before they applied to set aside the bankruptcy notice and therefore did not comply with s 174, which required the first disclosure to be given on or shortly after receiving instructions to act in the proceeding;

(2)    neither the first nor the second disclosure was signed by Homebuilding and the second was not signed by anyone;

(3)    the costs disclosures were emailed to Mr Re only;

(4)    the bill of costs discloses that about a quarter of the costs the subject of the second disclosure were incurred between 7 May 2021, when the Cappellos’ application to set aside the bankruptcy notice was filed, and 4 August 2021 inclusive, but s 174(1)(b) “mandates that the additional disclosure be given before the additional costs are incurred”;

(5)    even if the costs disclosures were compliant, the total “profit costs” (a term which I take to be a reference to the professional fees charged by Homebuilding’s lawyers) claimed in the bill exceeded the disclosures by $5,400.35 and whereas the first costs disclosure estimated counsel’s fees to be $4,000 plus GST, there was no further disclosure of counsel’s fees until the second disclosure by which time counsel had charged fees of $11,500 plus GST.

27    It is doubtful whether these particular objections can be entertained as they were not expressly raised in the notice of objection. In any event, none of them has merit.

28    As to the first complaint, although the first costs disclosure predated the proceeding, it related, amongst other things, to the enforcement of the judgment debt “through [b]ankruptcy proceedings”. It was therefore sufficient to capture costs incurred or likely to be incurred in such proceedings and that would include an application to set aside a bankruptcy notice.

29    As to the second, the Uniform Law does not require a costs disclosure agreement to be signed. Section 180(3) states that:

A costs agreement may consist of a written offer that is accepted in writing or (except in the case of a conditional costs agreement) by other conduct.

30    Here, a document entitled “General Terms of Business”, which was annexed to both disclosures sent to Mr Re, stipulated that acceptance of the costs disclosure and costs agreement could be effected either by signing and returning the document to the lawyers or by “continuing to instruct [them]”.

31    By continuing to instruct the lawyers, Homebuilding accepted the lawyers’ offer.

32    As to the third complaint, Mr Re was a director of Homebuilding at the time of the judgment that generated the judgment debt: see Cappello v Hammond & Simonds NSW Pty Ltd [2020] NSWSC 1021 at [2] (Ball J). In the absence of evidence to the contrary, the presumption of continuance applies. I therefore infer that Mr Re was also a director of Homebuilding at the time the costs disclosures were made. Mr Re was the second defendant in the Supreme Court proceedings. It is apparent from the judgment that he and Homebuilding were represented by the same lawyers, who are the lawyers for Homebuilding in the current proceedings. The costs agreements indicate that he and Homebuilding were “jointly and severally liable for any monies owing to [the lawyers]”. In these circumstances, sending the documents to Mr Re is sufficient to bring them to the attention of Homebuilding.

33    As to the fourth complaint, the obligation imposed by s 174(1)(b) of the Uniform Law is to provide the client “as soon as practicable” with information about “any significant change to anything previously disclosed”, including the estimate of total legal costs. It is apparent from the first disclosure that the professional fees were underestimated, but the Cappellos’ submission was made with the benefit of hindsight. The Cappellos made no attempt to explain to the Court when the lawyers ought to have realised that the costs were likely to be significantly greater than the amount they had originally disclosed. The Cappellos submitted that before the second costs disclosure, the “profit costs” exceeded the first amount disclosed by $7,477.95. I interpolate that, as a matter of fact, the figure is inflated because it is reached by subtracting from the costs charged inclusive of GST the amount disclosed excluding GST. Of that sum, however, more than half was charged as a result of work done within days of the second disclosure (on 2, 3 and 4 August).

34    In these circumstances it is difficult to see how the fourth complaint is sustainable.

35    The fifth complaint is plainly outside the grounds raised by the Cappellos in their notice of objection. In any event, the only invoice provided to the lawyers by counsel, which includes fees for 2, 3 and 4 August, is dated 18 August 2021. It is therefore incorrect to say that counsel had charged fees of $11,500 before the second fee disclosure of 5 August 2021. On the evidence before the Court he had not charged any fees before the invoice of 18 August was dispatched.

36    Even if the disclosure obligations were contravened and the costs agreements are void, that does not mean that there was no liability to pay legal costs. The consequences of non-compliance are exhaustively described in s 178(1) of the Uniform Law. For relevant purposes it only means that Homebuilding was not required to pay the legal costs until they were assessed: see s 178(1)(b).

37    In any event, it is likely that any non-compliance would be excused. That is because s 178(3) provides that the Legal Profession Uniform General Rules 2015 (NSW) (Uniform Rules) may provide that s 178(1) and (2) do not apply or apply with specified modifications in specified circumstances or kinds of circumstances and r 72A of the Uniform Rules provides “disapplies” s 178(1) in circumstances that probably apply here.

38    In a challenge to the costs assessment made following the Supreme Court proceedings, the Cappellos also argued that non-compliance with the costs disclosure requirements in s 178 of the Uniform Law offended the indemnity principle and meant that they were not liable to pay costs: Cappello v HomeBuilding Pty Ltd [2022] NSWDC 725 (Gibson DCJ) (PJ). An application for judicial review in respect of that judgment was dismissed: Cappello v HomeBuilding Pty Ltd [2023] NSWCA 109 (Mitchelmore JA, with whom Meagher JA and Simpson AJA agreed). There, the Cappellos questioned the date of particular costs agreements (PJ [14]). They also argued that the fact that they were unsigned affected their validity (PJ [16]); that they were non-compliant with the costs disclosure provisions in the Uniform Law because the costs estimates were not periodically revised (PJ [21]) and did not identify the barrister who was briefed (PJ [30]). In that case, Gibson DCJ held that the costs assessor and the Review Panel had correctly identified and applied the relevant legal principles (PJ [36]) and the Court of Appeal did not discern any error in that respect. The costs assessor, whose reasons were adopted and endorsed by the Review Panel (PJ [34]), observed that:

Matters to do with the circumstances of entering into a costs agreement and making disclosure are matters to be considered in a law practice/client assessment. They have no relevance in an ordered costs assessment…

39    That is abundantly clear from the terms of the Uniform Law.

40    Non-compliance with the provisions of Pt 4.3 Div 3 relating to costs disclosure means that the costs agreement is not prima facie evidence that the legal costs disclosed in it are fair and reasonable. It also means that, in the event of non-compliance, the Cappellos could not be required to pay Homebuilding’s costs “until they have been assessed or any costs dispute has been determined by the designated local regulatory authority”. It does not mean that the client party to the agreement is not liable for any costs and therefore the party against whom a costs order is made is not liable either.

41    The challenge therefore fails.

The objections

42    The amount in the certificate of taxation is $120 shy of the amount the lawyers claimed in the bill of costs (excluding GST), taking into account the concessions they made in their response to the notice of objection, but including the costs of the taxation.

43    The first objection the Cappellos made was to the first 11 items of the bill (strictly the first 10 items since the lawyers did not charge for the work to which item 10 related) on the basis that the costs were all incurred before the proceeding was commenced. This objection was well made. In its notice of response to the objections Homebuilding contended that those costs “revolved around identifying [the Cappellos’] assets and issuing the bankruptcy notice”. No other explanation was offered. The same is true of the disbursements the subject of items 79 to 84 of the bill. In these circumstances, as Homebuilding all but conceded in oral argument, the costs and disbursements claimed could not have been incurred in connection with the proceeding. Homebuilding should never have included those costs in its bill and should have conceded the point in their notice of response, particularly when their creditors’ petitions had been dismissed.

44    At the hearing Homebuilding accepted that item 78 was insupportable.

45    It follows that the certificate of taxation should be varied by reducing the amount by the sum of the amounts in items 1 to 10 (inclusive) and 78 of the costs and 79 to 84 (inclusive) of the disbursements. Otherwise, there is no reason to interfere with the Registrar’s determination. It is clear that all the remaining items were claimed in accordance with Sch 3 to the Rules. While objections were taken to a number of items on the basis that they were “excessive”, I was informed by Mr Anne, who appeared for Homebuilding, that the Cappellos did not take issue with the hourly or daily rates upon which the claims were based and Mr Cappello, who appeared in person without his wife, did not disagree.

Conclusions

46    The certificate of taxation should be varied by substituting $40,638.53 for $41,431.48.

47    While the Cappellos failed on their principal challenge, they had a measure of success. In the circumstances, each party should bear their own costs of the review. Since the Cappellos were largely unsuccessful in their challenge to the taxation, the Registrar’s decision to require them to pay the costs of the taxation should not be disturbed.

Associate:

Dated:        10 October 2023