Keybridge Capital Limited v Bell Potter Securities Limited

1. [1]

   By summons filed 28 February 2024, the plaintiff, (“Keybridge”), appeals from an assessment of costs by a Review Panel (“the Panel”) issued on 29 January 2024.

2. [2]

   The appeal is brought pursuant to s 89(1)(b) of the Legal Profession Uniform Law Application Act 2014 (NSW) (“the Application Act”) and is in the nature of a rehearing: (s 89(4)). This means that this Court’s powers are exercisable only where the appellant - here, Keybridge - can demonstrate that having regard to all the evidence now before the Court, the decision that is the subject of the appeal is the result of some legal, factual or discretionary error.

3. [3]

   The appeal is brought as of right because the grounds raise a dispute as to the entire amount of the costs assessment, which was more than $100,000.00.

4. [4]

   Keybridge asserts that the costs were not proportionate, and the Panel failed to give any, (or any proper), consideration to proportionality in the assessment it made. The appeal grounds as set out in the summons are:

5. [5]

   The relief sought includes orders setting aside the initial assessment by the Costs Assessor (Ms K Young, “the Assessor”) in September 2023 and associated certificates and judgment, and that the matter be listed for directions for determination of the amount of legal costs that are payable by Keybridge.

The underlying proceedings

1. [6]

   The case concerned an allegation of breach of warranty of authority. The issues for determination were succinctly outlined in the opening paragraphs of the judgment in August 2022 of Rees J: Keybridge Capital Ltd v Bell Potter Securities Ltd [2022] NSWSC 1022:

2. [7]

   The proceedings were commenced in the Supreme Court Common Law Division in April 2021, and claimed a loss of over $10 million framed in breach of warranty of authority as against Bell Potter and against a named person, Mr Mironi, for breach of contract, although it appears Keybridge never served Mr Mironi and took no steps to pursue that part of the case. The proceedings were commenced at the very end of the limitation period. Bell Potter, in submissions to the Assessor, stated that there was no warning or pre-commencement discussions. This had the effect that all of Bell Potter’s preparation was in response to a litigated position. This is relevant to the party/party costs context of the bill of costs (“the Bill”).

3. [8]

   At the request of Bell Potter, the proceedings were transferred to the Equity Division Commercial List. A Response was filed on 5 August 2021, including comprehensive and detailed responses to Keybridge’s contentions. There were some preliminary skirmishes regarding discovery of documents and amendments to the statement of claim. The matter was listed for a three-day hearing which proceeded on 2, 3 and 4 May 2022. Detailed written submissions and chronologies were filed by each party in late April 2022.

4. [9]

   Both the parties were represented by senior and junior counsel at trial. On 2 May 2022, counsel for Keybridge provided a short oral opening and then called Mr Bolton. Mr Bolton was extensively cross-examined for the rest of the day, some 54 pages of transcript. There were, evidently, credibility issues to explore.

5. [10]

   On 3 May 2022, Mr Heffernan, Keybridge’s expert on what comprises a “firm bid” in industry parlance, was called and cross-examined. Bell Potter then called Mr Shallard. He was cross-examined for a period corresponding to 24 pages of transcript.

6. [11]

   On 4 May 2022 oral submissions proceeded. Judgment was reserved.

7. [12]

   On 1 August 2022 Rees J gave a verdict in favour of Bell Potter and ordered that Keybridge pay Bell Potter’s costs of the proceedings. Her Honour concluded that Keybridge had not established that there was a concluded agreement for sale of shares reached by the series of conversations in April 2015, and in any event, Keybridge had failed to establish that it had suffered any loss. The judgment was 50 pages in length, and analysed in detail the reliability or otherwise of respective recollections of conversations that had occurred in 2015 which formed the basis of the dispute and which were not evidenced by any contemporaneous written record.

8. [13]

   It is worth observing that although the facts were of narrow compass, the implications of the allegations made by Keybridge - which failed - were serious. Bell Potter was said to have caused $10 million worth of loss. It would be foolhardy in the extreme for Bell Potter to take a relaxed attitude to defending such a claim, or to have placed the complexities of the claim in the hands of only a junior solicitor. As demonstrated by the outcome, the best form of defence was in carefully structured attack.

Applicable law and the “Guidelines”

1. [14]

   As the proceedings that formed the basis of the costs assessment were commenced after 1 July 2015, the applicable law is the Legal Profession Uniform Law 2015 (NSW) (“the Uniform Law”) and the Application Act, and the regulations made under those Acts.

2. [15]

   The statutory task imposed on costs assessors in New South Wales requires reference to both the Uniform Law and the Application Act. The criteria for costs assessment of ordered costs, (formerly known as party/party costs), is provided for in s 76 of the Application Act:

3. [16]

   Section 172 of the Uniform Law provides:

4. [17]

   It is common ground that the costs assessment regime prior to the 2015 legislation contained no reference to “proportionality”. “Proportionality” is not defined in the Application Act or the Uniform Law.

5. [18]

   Section 89 of the Application Act provides for appeals against a decision of a Review Panel:

6. [19]

   The effect of bringing this appeal under s 89 of the Application Act is that it proceeds by way of rehearing. No additional evidence was tendered, but the Costs Guidelines dated 2016 and October 2023 were tendered as documents that were referred to in the submissions to the Assessor and the Panel and the Panel’s decision.

7. [20]

   What “rehearing” means in this context has been the subject of comment by Basten JA in Gazecki v McCabes Lawyers Pty Ltd (2020) 102 NSWLR 98; [2020] NSWCA 98 (“Gazecki”) relevantly at [42] and [43]:

Costs Assessment Rules Committee guidelines

1. [21]

   The Costs Assessment Rules Committee published guidelines in March 2016 and again in October 2023 to provide guidance to assessors in the assessment of costs payable between parties under an order by a court.

2. [22]

   The guidelines state that they are not a substitution for s 76 of the Application Act and s 172 of the Uniform Law, but are to assist in promoting consistency and predictability. They are not binding on assessors.

3. [23]

   The guidelines provide an indication of the range of hourly and daily rates appropriate for legal service providers performing professional work. The ranges provided in the 2016 guidelines are:

4. [24]

   The 2023 guidelines provided as follows (noting that all the work done on behalf of Bell Potter was completed in 2021 and 2022):

5. [25]

   The main (but not only) focus of complaint by Keybridge was on the heavy involvement of the senior solicitor, Mr Giles and his rates (18 to 19 years post-admission experience) and senior counsel’s early involvement and hourly and daily rates.

The bill of costs and assessment process

1. [26]

   On 23 January 2023, Bell Potter applied under s 74 of the Application Act for its costs of the proceedings to be assessed. The Bill prepared and submitted for assessment was in the sum of $537,800.39 including disbursements.

2. [27]

   Keybridge filed a long and detailed Notice of Objections on 20 March 2023 which included general objections and over 570 specific objections to the Bill. Those objections placed in dispute over $353,000.00 of the claimed costs. The Notice was prepared by a costs assessor, Mr Walter. The following submissions were made specifically about proportionality:

3. [28]

   Specific complaint was also made about the hourly rates charged by the senior solicitor with conduct of the proceedings and the rates charged by senior counsel not being proportionate to the degree of difficulty of the subject matter and being allegedly “significantly more” than the rates in the “Guidelines” (which was a reference to guidelines published in 2016, some five years prior to any work being performed by Bell Potter in the proceedings).

4. [29]

   Bell Potter filed a Response on 30 March 2023 which included reference to proportionality and asserting at [25] that “not only was the potential quantum proportionate to the costs incurred but further that the manner in which the costs respondent conducted the matter was such that the costs incurred were increased and proportionate to the work required to properly defend a substantial claim”. It also stated, appropriately, that “it is proper to have regard to market rates in NSW considered reasonable for a complex commercial matter”.

5. [30]

   Keybridge’s costs assessor, Mr Walter, provided a response to Bell Potter’s response on 21 April 2023 which was defensive, unnecessary and largely argumentative and repetitive of matters already raised.

The Reasons of the Costs Assessor

1. [31]

   On 18 September 2023, the Assessor issued reasons for her Determination of Costs payable by Keybridge in the sum of $413,564.65. She had disallowed over $80,000.00 of the professional costs claimed, and over $43,000.00 of the claimed disbursements. This included a reduction by 10% of senior counsel’s fees. The Assessor also awarded interest on unpaid costs covering the period 1 August 2022 to 18 September 2023 in the sum of $39,692.58, noting that an offer to settle costs was made by Bell Potter, but Keybridge chose not to respond. With the costs of the assessment, the assessor fees and the filing fee, this brought the total figure to just over $497,000.00.

2. [32]

   In her reasons, the Assessor set out her basis of assessment at 6.1 to 6.7, which included a clear statement of the requirement for proportionality in determining what is a fair and reasonable amount of costs for the work done, that is, that the costs must be both proportionately and reasonably incurred, and proportionate and reasonable in amount. She also noted that a consideration of proportionality is not confined to the value of the subject matter. The requirements of s 172(2) of the Uniform Law were also set out. An analysis of the appropriateness of the hourly rates charged was set out at length, and the general objections were dealt with in turn.

3. [33]

   In respect of hourly rates charged by Bell Potter’s senior solicitor and senior counsel, the Assessor made the following remarks:

4. [34]

   At the hearing before me, emphasis was placed by Ms Castle, counsel for Keybridge, on paragraph 6.21 of the Assessor’s reasons under the heading “General Objections”, which addressed the complaint made by Keybridge that the total of the costs and disbursements was “manifestly and unreasonably excessive”:

5. [35]

   Ms Castle submitted that the wording of that paragraph evidenced that the Assessor did not make an assessment of proportionality because she stated that she had “not relied on general impressions nor made any general discount and instead had embarked on a review of the detailed objections to the Bill”. I will return to this assertion later in the judgment but pause here to note that singling out one sentence for individual scrutiny, removed from its context in 27 pages of reasons and assessment, rarely provides a whole or fair answer to the question as to whether there has been proper consideration of proportionality. It also highlights a focus in the argument posed by Keybridge which is misconceived as it is not reflective of the structure and requirements of the NSW provisions, in particular s 172(1) and (2).

6. [36]

   The Assessor then proceeded to a table of adjustments, providing reasons for the deductions she determined should be made. These reasons included “should have been delegated to paralegal or secretary”, “two lawyers not required”, “this aspect should have been known by lawyer on the record” and “deduct made given time already allowed for this affidavit”. Those considerations and the reasons for the deductions, reflect inbuilt assessments of what is proportional.

7. [37]

   On 6 October 2023, the judgment for costs was entered.

8. [38]

   On 31 October 2023, Keybridge filed an Application for Review of the Determination identifying 20 grounds of review. Two grounds addressed the question of proportionality, but with specific focus on the hourly rate charged by the senior solicitor and by senior counsel, not on any articulated wider concept of proportionality:

9. [39]

   I interpolate here that Keybridge’s senior counsel’s charge rates were $850.00 per hour and $8,500.00 per day, not such a significant difference to Bell Potter’s senior counsel, which were, on assessment, reduced by 10% by the Assessor to $950.00 per hour and $9,500.00 per day.

10. [40]

    Bell Potter filed its Submissions in Response on 17 November 2023 with particular focus on the hourly rates charged and the relevance of the 2023 guideline for rates being a closer approximation to a commercial reality than the 2016 guideline rates, given that all the work in the proceedings was done in 2021 and 2022, five and six years respectively after the 2016 guidelines and only one and two years before the 2023 guidelines.

11. [41]

    Keybridge filed its Submissions in Support of its Application for Review on 1 December 2023 with focus on the hourly rates issue, as well as the use of 6-minute time costing units, fees charged for research, delegation to and supervision of junior staff, the preparation of the court book, and fees for two counsel. There is no specific submission about proportionality in its wider sense. (I note here again that Keybridge also retained two counsel for the hearing).

Reasons of the Review Panel

1. [42]

   The Panel, comprising Michael Dyson and Christopher Wall, issued its determination on 29 January 2024. Relying upon Wende v Horwath (NSW) Pty Limited (2014) 86 NSWLR 674; [2014] NSWCA 170 at [157] to [163], the Panel stated that it is not required to make a new assessment as if the original assessment had never been made. The starting point will be the original determination and where a party makes particular objections, the Panel is entitled to proceed on the basis that that person is, in all other respects, content with the original assessment. The Panel stated: “In such a case, the Panel will adequately perform its function by dealing with the expressed grounds of objection and giving each of them separate and distinct consideration”.

2. [43]

   There was no submission made by Ms Castle that there was anything wrong with this approach, rather, that the Panel effectively perpetuated the asserted errors in approach of the initial assessor in failing to reduce the Bill in some general “stepping back” to consider, separately, proportionality.

3. [44]

   The Panel proceeded to deal with the question of the lawyers’ hourly charge-out rates. On the issue of the rates published in the guidelines, the Panel noted that irrespective of the dates of the guidelines, the Panel is required to consider s 76 of the Application Act, and so what is a fair and reasonable amount of costs for the work concerned, and in considering what is a fair and reasonable amount of costs for the work concerned, have regard to the factors in s 172(1) and (2). Relevantly the Panel concluded:

4. [45]

   This, Bell Potter submitted, is express consideration of proportionality by the Panel and so the main complaint of Keybridge about the Panel’s approach falls away.

5. [46]

   The remainder of the Panel’s determination deals individually with the other specific grounds in an appropriate fashion and dismisses them all with focussed and succinct reasons.

Submissions of Keybridge - Lip service only was paid to the concept of proportionality

1. [47]

   Ms Castle submitted that an essential part of the application of s 76 requires a costs assessor to take into account proportionality because it is part of determining whether costs are fair and reasonable, and because it is the basis upon which legal costs can be charged by law practices to their clients. Given that Keybridge is entitled to have an assessment conducted and determined according to law, there must be, on the part of the Assessor and Panel, a review that gives content to the notion of proportionality. Referring to it as a concept, as both the Assessor and the Panel did, is not the same as applying it and giving effect to it in the determination.

2. [48]

   Ms Castle argued that the costs incurred lacked proportionality considering that they were almost twice the amount of costs incurred by Keybridge who was the moving party, particularly given that Bell Potter did not have to produce any evidence regarding damages whereas Keybridge did. There was only one lay witness for each party. The issues were straightforward, and the facts comprised only a small number of interactions.

3. [49]

   Ms Castle submitted that Skalkos v T & S Recoveries Pty Ltd (2004) 65 NSWLR 151; [2004] NSWCA 281 demonstrated that costs could be “fair and reasonable”, yet far exceed the value of the verdict but that the relevant consideration, as noted by Ipp JA, was whether those costs “bear a reasonable relationship” to the value and importance of the subject matter in issue.

4. [50]

   Reliance was placed by Ms Castle on English decisions that arose out of amendments made in 2000 to English costs provisions that introduced the concept of proportionality. Ms Castle sought to argue, by analogy, that the amendments to English law reflected recognition that costs could be assessed as fair and reasonable, yet still be disproportionate.

5. [51]

   Ms Castle relied upon the observations of Lord Wolfe CJ in Home Office v Lownds [2002] EWCA Civ 365 at [2]:

6. [52]

   Ms Castle submitted that this concern articulated by Lord Wolfe in Lownds was further examined and the rationale for proportionality expanded upon by Dight J in May v Wavell Group Plc [2016] 6 WLUK 399 (“May”) at [28] to [32]:

7. [53]

   Ms Castle submitted that these considerations underscore the need to give practical application to the introduction of proportionality to the NSW legislation. However the costs regime analysed in May was concerned with a different set of costs rules to the NSW regime.

8. [54]

   I interpolate that those English rules are different to s 172. They include an additional requirement, (r 44.3(2)), which under the heading “Basis for Assessment” provides: “costs which are disproportionate in amount may be disallowed or reduced, even if they were reasonably and necessarily incurred”. There is no parallel provision in the NSW regime.

9. [55]

   Also significantly different to the NSW provisions is r 44.3(5) of the English rules, (considered and applied in May), which specifically provides for when costs incurred can be considered to be “proportionate”:

10. [56]

    Those factors, other than (c), and arguably (e), are markedly different to those mandatory considerations listed in s 172(2).

11. [57]

    Ms Castle acknowledged that since the introduction of “proportionality” in the Uniform Law, there has been little by way of detailed examination of the concept. Ms Castle referred to Andrew John Francis v Powercor Australia Limited [2020] VSC 405 where Nichols J made the following observations in the context of approving costs as a component of a representative action:

12. [58]

    As observed by Ms Ng, counsel for Bell Potter, this is a very different context to an inter-partes costs order. Very different considerations apply in the context in which Nichols J was examining costs.

Submissions of Bell Potter - Proportionality was part of the obvious application of s 172 to the task of assessment undertaken

1. [59]

   Ms Ng submitted that there was no error by the Assessor or by the Panel in the approach they took when regard is had to s 172(2). Proportionality was continuously applied in the Assessor’s approach to her table of adjustments.

2. [60]

   Proper focus on the relevant provisions is essential to avoid erroneously drawing from the English rules, (and decisions about these rules), some kind of parallel requirements when there is none.

3. [61]

   Reliance by Ms Castle on the comments of Nichols J, in the context of approving a costs component in a class action, is misplaced and wrong.

4. [62]

   The fact that Keybridge’s costs were less is not a consideration set out in s 172. There may be a variety of (irrelevant) reasons why Keybridge’s costs were less. It is not a relevant or appropriate measure to use as a basis for impugning Bell Potter’s costs as not proportionate. Bell Potter’s affidavit of Mr Shallard was lengthy and had to address a multi-pronged attack. Credibility of Keybridge’s main witness Mr Potter was significantly in issue. This required substantive focus and preparation.

5. [63]

   The Panel approached its task in a unexceptional way, addressing each complaint and upholding the decision of the Assessor. There was no error.

Decision

1. [64]

   The issue for determination is whether proportionality was properly considered and applied in the assessment made by the Panel, following as it did on the assessment approach taken by the Assessor.

2. [65]

   The approach taken by Ms Castle for Keybridge has a fatal flaw. It removes s 172(1) from its statutory context and imposes a requirement that an unwritten additional step be taken in the costs assessment process.

3. [66]

   When read in context, subsection (2) of s 172 sets out the mandatory considerations that inform proportionality and the way it is to be applied. That explains the focus in the costs appellant’s submissions to the Assessor and the Panel, (and in the Assessor’s and the Panel’s reasons), on the hourly rate of the senior solicitor and senior counsel and their use of skill, experience, specialisation and seniority: (s 172(2)(a)); the labour and responsibility involved: (s 172(c)); the urgency and time spent, and the location of the work: (Sydney based commercial matter in the Supreme Court of NSW Commercial List, (s 172(2)(d)), and the quality of the work done, (s 172(2)(e)).

4. [67]

   When regard is had to s 172(2), it is clear why the Assessor and the Panel took the approach that they did, with an emphasis on the level of skill, experience, specialisation and seniority of the lawyers concerned. The Panel was responsive to the main focus of attack of Keybridge’s submissions - i.e, that the Assessor should not have allowed the hourly rates it did for the lead solicitor and senior counsel.

5. [68]

   Also, as stated by Basten JA in Gazecki, care needs to be taken in transposing statements from other cases dealing with different powers and regimes. The English system that is so heavily relied upon to form the basis of Ms Castle’s assertion that proportionality had not been implemented by the Assessor and Panel has completely different provisions to NSW as to how proportionality must be taken into account and given effect. Rule 44.3(2) in the English rules could be viewed as requiring a separate “stepping back”, as it provides, separately to the other rules, that costs that are disproportionate in amount may be disallowed or reduced, even if they are reasonably and necessarily incurred. There is no parallel provision in NSW.

6. [69]

   The subject litigation was a commercially significant claim brought without notice, six years after the events, alleging that Bell Potter warranted certain matters to Keybridge that were incorrect or untrue. Relying on that, it was alleged that Keybridge suffered a major loss and was entitled to $10 million in damages.

7. [70]

   This was a serious allegation with significant potential financial impact for Bell Potter. It required focussed, forensically astute investigation and defence. It required careful, tactical preparation with appropriately senior legal expertise that left no issue unconsidered or unprepared. Section 172(2)(a), (b), (c) and (e) direct mandatory and specific focus to these qualitative attributes of the work done.

8. [71]

   The retainer of properly experienced senior counsel early in the proceedings was a proportionate and appropriate, indeed, necessary step to take. The successful application by Bell Potter for removal to the Commercial List, with its structured case management requirements, was another important step that would bring focus and critical analysis to the issues, crystallising sooner rather than later, the real issues for determination. The statement of claim filed by Keybridge had the flavour of a “scatter-gun” approach, pleading a whole additional cause of action in contract against another named defendant that was ultimately not pressed at trial. It is a fair submission, that clearly was accepted by the Assessor and the Panel, that a lot of the work that had to be done was caused by the way in which Keybridge approached the litigation.

9. [72]

   It is both unsurprising and correct that the approach taken by the Panel (and the Assessor before that) focused on s 172(2) matters. Once they were assessed and determined in an unexceptionable way, that effected the application of the requirement of proportionality. The question of whether the costs are proportionate is judged by the extent to which the costs reasonably reflect in particular those matters set out in (a) to (f) of s 172(2).

10. [73]

    I do not accept, as Ms Castle submitted, that the NSW provisions require something additional after detailed, focussed assessment with an eye to those s 172(2) factors, in the nature of some kind of separate “standing back” and discounting or reducing the total sum on some inchoate basis, to demonstrate that proportionality has been applied.

11. [74]

    The question of proportionality was inbuilt in the approach of the Panel, (and the Assessor) in their emphasis on the s 172(2) mandatory factors. The approach taken by the Panel to the role and application of the guidelines underscored a consistency of approach. I am satisfied that both proper consideration and application was given to the role of proportionality and there was no error.

Orders

1. [75]

   I make the following orders:

   1. (1)

      Summons dismissed.

   2. (2)

      The plaintiff to pay the defendant’s costs.