In the matter of Erma Properties Pty Limited

On 14 December 2017 I made orders dismissing an application filed by the Plaintiff, Erma Properties Pty Ltd (“Erma”) to set aside a creditor’s statutory demand (“Demand”) served by the Defendant, A Plus Fire Pty Ltd (“A Plus”) on 17 July 2017 with costs. A Plus then indicated that it sought costs on a lump sum basis and I directed that the parties submit agreed Short Minutes of Order as to the question of any lump sum costs order by 22 December 2017 or, if there was no agreement between them, the respective Short Minutes of Order and short submissions as to the differences between them.

The parties did not reach agreement and, by its submissions served on 22 December 2017, A Plus indicated that it applied for a gross or fixed sum costs order under s 98(4)(c) of the Civil Procedure Act 2005 (NSW). The circumstances in which such an order may be made are well established and were not controversial in this application. I recently summarised them in Saba v Plumb & Anor [2017] NSWSC 955 at [23] as follows:

A Plus submitted that such an order should be made because its costs were modest, so that the costs of having them assessed were likely to be disproportionate to the amount that may be in issue on assessment; the limited scope of the costs means that they can be reasonably quickly assessed for reasonableness without the need of, and cost of, formal assessment; and, where a presumption of insolvency arises from a failure to satisfy the Demand under s 459C of the Corporations Act 2001 (Cth), there is a risk that any costs incurred by A Plus in connection with an assessment will be irrecoverable and wasted. Each of these matters provide support for the making of a lump sum costs order, at least where the costs involved are modest, in an application to set aside a creditor’s statutory demand.

A Plus initially relied on a schedule of its costs provided to Erma in Court when judgment was delivered on 14 December 2017. The costs initially claimed by A Plus comprised actual solicitor’s fees and disbursements (other than Counsel fees) billed up to 31 August 2017 (the date on which a director of A Plus prepared an affidavit in response to the detailed evidence on which Erma had relied in support of the application to set aside the Demand) of $4,140 (excluding GST) and Counsel’s fees billed up to 30 August 2017 of $3,955 (excluding GST). Those amounts were supported by a copy of the solicitor’s costs disclosure, Counsel’s fee agreement and an invoice dated 31 August 2017 recording discounted costs of $4,000, modest disbursements of $140 and Counsel’s fees. A Plus also initially relied on an estimate of reasonable solicitor’s fees from 1 September 2017 to the date of the hearing on 1 December 2017 of $2,500, and an estimate of Counsel’s fees from 31 August 2017 up to and including the hearing date of $6,500, for a total of $17,095 (excluding GST). Properly, the costs claimed by A Plus did not include any amount for GST, because A Plus accepted that it would be entitled to claim an input tax credit in respect of any GST.

I did not consider that I could properly make a gross sum costs order on the basis of no more than an estimate of costs for the three month period from 1 September 2017 and, on 2 January 2018, I made the following directions:

By a further schedule provided on 22 January 2018, A Plus provided an updated schedule of solicitor and counsel fees, which indicated that it claimed discounted amounts for the costs claimed to 31 August 2017; that actual solicitors’ costs from 1 September 2017 to the date of the hearing were $4,120, although it claimed a substantially discounted amount of $2,500 (consistent with the earlier estimate); and counsel’s fees from 31 August 2017 to the date of the hearing were $7,060, for which it claimed a discounted amount of $6,500 (consistent with its earlier estimate). Erma did not make any further submissions in response.

A Plus did not file an affidavit or tender an invoice proving the amount it incurred for costs since 31 August 2017, but I recognise that the Court from time to time makes lump sum costs orders in less complex applications in respect of statutory demands and winding up applications without such evidence; A Plus was not specifically directed to file such evidence; and the Court is in a position to make an assessment of whether the costs claimed are reasonable by reference to the nature of the matter and the detail of the evidence led at the hearing. Mr Phillips, who appeared for A Plus, submitted that the amount of solicitors’ costs claimed is explicable by the length of the affidavit evidence on which Erma relied, including a first affidavit of 93 pages and a second affidavit of 140 pages, to which A Plus responded with a 67 page affidavit. With some hesitation, I am satisfied that the schedule of costs, the supporting documents provided for the period prior to 31 August and the Court’s knowledge of the matter are sufficient for the purposes of this application.

Mr Phillips also recognised that the Court may well allow solicitors’ costs at 70% of the invoiced costs, as an estimate of the costs that would be allowed on an assessment, and refers to my decision in Re Aquaqueen International Pty Ltd [2015] NSWSC 500. He submitted that that approach was not appropriate where, inter alia, the total amount of costs and the charge-out rate of the Defendant’s solicitor was “modest”. It seems to me that the authorities establish that a party which seeks a gross sum costs order will typically be required to submit to a discounting of the costs involved, to avoid the risk that the party against whom that order is made is disadvantaged by the loss of the opportunity to have an assessor review those costs. I would adopt the same course here in respect of solicitors’ costs, although that approach is not ordinarily extended to Counsel’s fees. I would not adopt the alternative course raised by Mr Phillips, of allowing a discount of $1,000 - $2,000 to solicitors’ costs, involving a marginal reduction in the solicitor’s rate, where there was no evidentiary basis for that approach. Mr Phillips also noted that the amount claimed did not include costs in respect of preparing the submissions as to a gross sum costs order, and I do not make any further adjustment in that respect.

In response, Erma submitted that A Plus’s schedule of costs was not itemised; that the legal fees “may seem reasonable” although Erma is unaware of the work that was undertaken and the work that the legal fees relate to and is unable to assess the reasonableness or otherwise of those legal fees; and that the matter is not the type of matter in which a lump sum costs order should be made. That proposition is inconsistent with the several cases in which lump sum costs orders have been made in applications of this kind.

I am satisfied that this is a proper matter for a lump sum costs order, for the reasons that A Plus has indicated. However, I would allow the lower of the amount of 70% of actual solicitor costs, the figure often adopted in matters of this kind and the discounted amount claimed by A Plus, and the discounted amount claimed by A Plus in respect of counsel’s fees. A Plus’s costs should therefore be allowed in the lump sum of $15,440, made up of solicitor costs (discounted to 70%) and disbursements other than Counsel’s fees to 31 August 2017 of $2,940; Counsel’s fees to 30 August 2017 in the discounted amount claimed of $3,500; solicitor costs and disbursements from 1 September 2017 to the date of the hearing in the discounted amount claimed of $2,500; and Counsel’s fees from 31 August 2017 to the date of the hearing in the discounted amount claimed of $6,500.

I therefore order that the Plaintiff pay the Defendant’s costs of the application in the gross amount of $15,440.