Sheppard v State of New South Wales

1. [1]

   By Notice of Motion filed on 14 August 2014, the defendants seek an order under s 98(4)(c) of the Civil Procedure Act 2005 (NSW) (“the Act”) for a costs award to be made by a specified gross sum instead of assessed costs.

2. [2]

   An order is also sought for interest on costs pursuant to s 101 of the Act.

3. [3]

   The primary proceedings involve a bush fire which began near Mt Hall in the Blue Mountains National Park on Christmas Eve in 2001. Russell and Joanne Shepard (“the Plaintiffs”), together with a number of other plaintiffs, alleged that the defendants were negligent in their response to the fire.

4. [4]

   The substantive hearing began on 24 October 2011 and was completed after 88 days on 24 May 2012. By judgment dated 26 June 2012, Walmsley J ordered verdicts for the defendants against each plaintiff together with costs.

5. [5]

   On 28 June 2012, after further argument, the plaintiffs were all ordered to pay the defendants’ costs on an indemnity basis and the defendants were given liberty to apply for the orders now sought.

6. [6]

   Affidavit evidence shows that over the intervening years, negotiations have proceeded with all the other plaintiffs regarding costs, and all but Russell and Joanne Sheppard have resolved their costs with the defendants.

7. [7]

   Between August 2014 and 21 July 2017, when the matter first came before me for hearing, there had been multiple attempts at service upon the Plaintiffs. Many letters were written that remained unanswered. Six directions hearings were held at which neither Russell nor Joanne Sheppard appeared. A substituted service order was made in March 2017 for one of the affidavits still to be served, due to the ongoing difficulty in effecting complete personal service upon both of the Plaintiffs.

8. [8]

   The Notice of Motion first came before me on 21 July 2017. There was no appearance for the Plaintiffs. At that time I was not satisfied that there was sufficient clarity conveyed to both Plaintiffs regarding the important and final nature of the orders that were sought and the application was stood over to 10 October 2017 to allow for service of such notice.

9. [9]

   There was no appearance for either of the Plaintiffs on 10 October 2017 despite evidence that service of the notice of the date and correspondence setting out the orders that will be sought and made in their absence if they did not attend. There was again no communication by the Plaintiffs with the defendants’ solicitors about the application and no communication with the Court. On 10 October 2017, I heard the application in full in the absence of the Plaintiffs.

10. [10]

    For the reasons that follow, I concluded that it was consistent with the overriding purpose rule (Uniform Civil Procedure Rules 2005 (NSW) r 2.1) and ss 56 and 57 of the Act to proceed in the absence of the Plaintiffs despite the orders effect upon them. I have determined that a gross sum costs order is appropriate, however I decline to order interest on costs paid to date.

Proceeding in the absence of the Plaintiffs

1. [11]

   Affidavit evidence relied upon by the defendants reveals that the defendants’ solicitors have made multiple attempts to engage the Plaintiffs in discussion regarding the costs orders made against them but to no avail. The relevant history set out in the affidavits includes multiple unsuccessful attempts at service between August 2014 and early 2015; unanswered letters to the Plaintiffs on 26 November 2014, 4 February 2015, 9 April 2015 and 15 April 2015 inviting the plaintiffs to participate in mediation and further correspondence in October 2015 advising of the further return date for the motion of 19 November 2015.

2. [12]

   On 28 October 2015 Russell Sheppard was personally served with the notice of motion at his work address. The following is an extract from an Affidavit of Service of the process server, Kurt Hippe dated 9 November 2015:

3. [13]

   On 19 November 2015, the defendants’ Notice of Motion was listed before Justice McCallum. There was no appearance for either Plaintiff. The matter was referred for mediation and adjourned to 4 March 2016 for further directions.

4. [14]

   Further letters were written by the defendants’ solicitor in an effort to arrange mediation. There was no reply. At the directions hearing on 4 March 2016, there was no appearance for the Plaintiffs.

5. [15]

   Personal service of the Notice of Motion and associated affidavits and correspondence was effected upon Joanne Sheppard on 18 March 2016.

6. [16]

   The process server provided the following account:

7. [17]

   This was followed by further letters to the addresses where service had taken place advising of the next directions hearing and inviting the Plaintiffs to engage in mediation. No reply was received.

8. [18]

   Further attempts at service of the detailed report of Ms Vine Hall (costs expert) were made unsuccessfully between June 2016 and February 2017.

9. [19]

   On 18 May 2017, the Deputy Registrar of the Court ordered that there was no requirement for the Vine Hall report and affidavit to be personally served on Russell Sheppard.

10. [20]

    By letter of 21 June 2017 the plaintiffs were advised of the listing of the matter on 21 July 2017.

11. [21]

    I am satisfied by the attitude communicated in the conversations with the process server by both Russell and Joanne Sheppard as set out at [12] and [16] above, the failure to appear at any of the direction hearings and the failure to engage with any of the correspondence of the defendants’ solicitor is one of refusal to participate in or defend the orders sought.

12. [22]

    Sections 56 and 57 impose obligations upon parties to litigation:

13. [23]

    The obligations of cooperation have been ignored by the Plaintiffs. Given the history, I consider it appropriate to proceed to determine the application and to make orders in the absence of the Plaintiffs.

Legislative power and principles for costs to be assessed in a gross sum

1. [24]

   Section 98 of the Act provides relevantly as follows:

2. [25]

   Indemnity costs orders have already been made against the plaintiffs. Section 98(4) makes specific provision for an order of the type the defendants seek. The principles have been set out in the judgment of Beazley JA in Hamod v State of New South Wales [2011] NSWCA 375, [813]-[820].

3. [26]

   In broad terms the discretion available in s 98(4) may be exercised where the assessment of costs will be protracted and expensive, where it appears a party obliged to pay the costs would not be able to meet a liability for the order likely to result from the assessment and where it can be done fairly between the parties, with confidence that the approach taken to the estimate of costs is fair, logical and reasonable.

Affidavit Evidence regarding the costs estimate

1. [27]

   The affidavits in support of the application comprised the following:

   1. (1)

      Special Counsel Timothy Hackett, the solicitor who conducted the proceedings and instructed Counsel;

   2. (2)

      Deborah Vine-Hall, a highly experienced and respected costs consultant which annexed a very detailed report providing a detailed analysis of the potential costs assessment;

   3. (3)

      Solicitor Ms Deisner setting out attempts at service, correspondence with the Plaintiffs and attempts to engage the Plaintiffs in negotiation; and

   4. (4)

      A series of affidavits of process servers regarding the many attempts at service of the notice of motion, letters and affidavits.

2. [28]

   The affidavit of Mr Hackett outlines the nature of the legal work conducted. He deposes to the commencement of the wider proceedings in May 2002 when the first Statement of Claim was filed and served. Russell and Joanne Sheppard’s Statement of Claim was filed on 4 October 2005. The affidavit outlines that in May 2008, mediation occurred at which some of the proceedings were settled and Offers of Compromise were served on the remaining plaintiffs. Proceedings were case-managed toward a second mediation in 2009. There were some costs orders made against the defendants. The substantive hearing commenced in October 2011, and finished with oral submissions on 24 May 2012. Judgment was delivered on 26 June 2012 and indemnity costs orders were made on 28 June 2012.

3. [29]

   Mr Hackett’s affidavit sets out the associated legal costs and disbursements in a detailed schedule and chronology, cross referencing the expenses to evidence of (the exhibited) receipts for payment of disbursements and counsels fees.

4. [30]

   Taking into account the commencement date, costs orders made in favour of the plaintiffs (and the defendants) and the respective complexities associated with each of the plaintiffs’ causes of action, Mr Hackett concluded that a reasonable apportionment to the Plaintiffs of the defendants’ total costs of the proceedings (the sum of $6,523,833.33) is a sum of $421,615.83.

5. [31]

   The report of Ms Vine-Hall dated 24 July 2014 annexed to her affidavit provides a range of estimates for the total fees that could be expected to be recovered by the defendants if they proceeded to formal assessment. Ms Vine-Hall was asked to address the following specific questions:

6. [32]

   To do this, Ms Vine-Hall considered the methodology adopted by Mr Hackett. She took into account descriptions in Mr Hackett’s affidavit of the costs claimed in the individual matters and having regard to the methodology adopted addressed the question of whether the approach taken for calculating costs payable was logical, fair and reasonable in result. She also considered whether the amount claimed for costs was logical, fair and reasonable.

7. [33]

   Ms Vine-Hall concluded that the process of assessment could take at least 26 months without considering the possibility that the Plaintiffs may choose to provide individual objections to the defendants’ applications for assessment. She said that filing fees alone would exceed $65,000, preparation of itemisations would cost at least $250,000, preparation of global objections could cost $50,000, and responses another $10,000. She concluded the total costs would be in the order of $395,000 simply to prepare and carry the costs assessment through the necessary processes to finality.

8. [34]

   Ms Vine-Hall concluded that the methodology adopted to accommodate multiple costs orders during the proceedings was logical, that the total of $6,523,883.33 claimed for the entire proceedings was reasonable, including a finding that the rates charged by the solicitors and counsel were reasonable and concluding that they were likely to be allowed without reduction on the ordinary basis as well as consistent with the order made here by the hearing judge on an indemnity basis.

9. [35]

   Ms Vine-Hall concluded that the work was carried out in a reasonable way, that there were appropriate delegations for work and the division of labour was economical and the staffing level working on the matter was conservative.

10. [36]

    Ms Vine-Hall considered that if costs were to be assessed, the defendants would be likely to recover $6,077,722.97 for the whole proceeding. She also concluded that there was no particular identifiable reason as to why the Court should, in making a gross sum order, make any particular reduction or discount as she had already factored in potential arguments and consideration.

11. [37]

    Ms Vine-Hall concluded that even in party/party costs orders, 85% of the costs charged by the defendants in this matter were likely to be recovered on assessment and costs incurred during the period where the defendants were entitled to costs on an indemnity basis, approximately 95% of the costs would be recovered.

12. [38]

    The affidavit of Ms Diesner sworn 18 July 2017 deals with the many efforts to engage the Plaintiffs in negotiation on costs and of this Notice of Motion through the Court to date. It deposes to correspondence forwarded to the Plaintiffs and attempts at formal service over the last three years. That correspondence includes notifying the Plaintiffs that the defendants seek to have a gross sum costs order made and inviting the Plaintiffs to engage in negotiation regarding costs. There was also a specific invitation to the Plaintiffs to provide a statement of assets and liabilities to further negotiations. Mediations were also proposed but could not proceed due to lack of cooperation from the Plaintiffs.

13. [39]

    It is evident from the affidavit of Ms Diesner, and the affidavits of service and attempted service, that the plaintiffs have made a conscious choice to take no role in this part of the proceedings.

Decision regarding gross sum costs order

1. [40]

   The entitlement resting with the defendants to recover costs from the unsuccessful plaintiffs on an indemnity basis is clear. The discretion I have to exercise pursuant to s 98(4) of the Act requires me to be confidently satisfied that any amount owed is no greater than an amount that a formal assessment of costs will produce. I also need to consider whether the approach taken to the estimate of costs set out in the affidavit material is logical, fair and reasonable.

2. [41]

   Obviously there has been no challenge to the affidavit material because there has been no appearance by the Plaintiffs to challenge it. The cases suggest that I need to take a broad brush approach to the gross sum assessment. I am to, in exercising this discretion, apply s 56 of the Act to facilitate just, quick and cheap resolution of the issues in dispute.

3. [42]

   I have taken into account, given the absence of any legal representatives to deal with the costs part of these proceedings, that the Plaintiffs are likely to remain unrepresented through any costs assessment process. I agree with the observation of Davies J in Chaina v Presbyterian Church (NSW) Property Trust (No 26) [2014] NSWSC 1009 at [50(c)] and [51] that it is appropriate to take into account this fact and its likely effect on the costs and complexities of pursuit of a formal costs assessment process.

4. [43]

   Whilst costs orders have been made, to proceed down the path of formal costs assessment would require much further work, which on its own would create very significant further expense that it appears unlikely ever to be recovered by the defendants. One obvious order to bring proceedings to finality would be to make a gross sum costs order if I consider it reasonable and appropriate to do so. The defendants can then choose to commence recovery proceedings if so minded.

5. [44]

   I am of the view that the plaintiffs have been given adequate opportunity to respond, to negotiate, to be heard, to appear and to make submissions. On the evidence before me, no reply of any kind by letter or phone call has been provided to the defendants’ solicitors in response to their invitations to engage in discussion about costs or to cooperate with or respond to this Notice of Motion or to appear at court.

6. [45]

   I am satisfied having read the evidence in support of the application that it is appropriate to make the orders sought. It seems to me to be just and fair for the defendants to proceed in this way and is also consistent with the requirements of ss 56 and 57 of the Civil Procedure Act. The carefully collated affidavit material supports responsible, reasonable and competent preparation of this complex litigation. The attribution to the Plaintiffs of the sum of $421,615.83 from the overall costs figure appears to be reasonable.

7. [46]

   I take the view that an overall reduction of 20% should be made to ensure that exigencies that may apply in a formal assessment of costs is not lost to the Plaintiffs. In all the circumstances I consider it to be just and fair outcome that the sum of 80% of $421,615.83, being $337,292.66 is the specified gross costs sum.

Application for interest on costs

1. [47]

   The defendants assert that they are entitled to interest on costs under s 101(4) of the Act which provides as follows:

2. [48]

   Section 101 does provide the discretion to order that interest is to be paid “on an amount payable under an order for payment of costs”. I observe that other than an order for indemnity costs, no identification of a specific sum for costs due to be paid by the Plaintiffs to the defendants has been made until this judgment.

3. [49]

   Mr Hackett’s affidavit says that all costs claimed have been paid and the dates of payment are shown in several spread sheets exhibited to his affidavit.

4. [50]

   The defendants submitted that they would be entitled to an order for interest calculated in accordance with Leda Pty Ltd v Weerden (No 2) [2007] NSWCA 283 from the dates of payment, or alternatively at least from the date of the costs order made by Walmsley AJ on 28 June 2012. I do not agree that would be a just outcome.

5. [51]

   While the evidence supports personal service of the Notice of Motion and some of the affidavit evidence on Russell Sheppard on 28 October 2015 and on Joanne Sheppard on 18 March 2016, what is identified is a potential argument about what approach should be taken by the Court and the parties to the identification of costs payable.

6. [52]

   The affidavits before me indicate efforts were made to engage the Plaintiffs in debate about resolution of the unpaid costs. The defendants submit that on 28 June 2012 when the indemnity costs order was made in their favour by Walmsley AJ, it was “clearly contemplated” that an application would be made by the defendants for an order for interest on costs as well as the gross costs order application. There is however no order identifying “an amount payable under an order for payment for costs” and it was over five years before the defendants’ material on costs was ready and the applications heard. To that extent, no payment of the defendants’ costs due to them by the Plaintiffs could be made until now.

7. [53]

   The principles relevant to my discretion to award interest on costs were collected together in the following extract from the judgment of Campbell J in Lahoud v Lahoud [2006] NSWSC 126 at [82]-[83]:

8. [54]

   This approach was approved by the Court of Appeal in Leda Pty Ltd v Weerden (No 2) [2007] NSWCA 283 at [7]-[9].

9. [55]

   The principles suggest I do not need to be satisfied before an order for payment of interest on costs is made that the circumstances of the case are out of the ordinary. I should consider the extent to which the defendants have been out of pocket as a result of having to pay their lawyers’ costs and disbursements. His Honour Justice Campbell also took into account the length of time the proceedings had been on foot, the extensive preparation and potential for the applying party to have been out of pocket.

10. [56]

    Whilst I appreciate all those considerations are important, I am of the view that the circumstances here are different. The Plaintiffs, it seems, no longer have the benefit of any legal representation. Whilst it is entirely inappropriate to “run dead” on correspondence regarding costs and service of legal process and to fail to appear at dates set down for the hearing of interlocutory process in relation to costs, there has not been, until this judgment, any formality in securing with any precision the sum the Plaintiffs are due to pay to the defendants for costs.

11. [57]

    In all the circumstances, I decline to award interest.

12. [58]

    Obviously, by operation of s 101(3), if the Plaintiffs do not pay the specific gross costs sum within 28 days, interest on that sum will accrue from the date of this judgment.

Orders

1. [59]

   I make orders as follows:

   1. (1)

      The defendants’ costs are to be paid on the basis of a specified gross sum instead of assessed costs.

   2. (2)

      The specified gross sum due to be paid by the Plaintiffs to the defendants is $337,292.66.

   3. (3)

      The Notice of Motion is otherwise dismissed.