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Indemnity Costs

By way of recap, Chapter 17A Uniform Civil Procedure Rules (UCPR) outlines the rules regarding costs in Queensland. It is common ground that costs are discretionary and “follow the event” unless the Court orders otherwise and are to be assessed unless otherwise ordered. Typically, there needs to be some “special or unusual feature” of the case that justifies the Court departing from the basic principle as set out in r.681 and 702 of the UCPR.


The first two articles in this series consider briefly how to maximise your costs, cost orders and standard costs. This article is concerned with Indemnity costs.


By rule 703 of the UCPR, the court may order costs to be assessed on the indemnity basis.


When assessing costs on the indemnity basis, a costs assessor must allow all costs reasonably incurred and of a reasonable amount, having regard to:

  • the scale of fees prescribed for the court; and

  • any costs agreement between the party to whom the costs are payable and the parties solicitor; and

  • charges ordinarily payable by our client to a solicitor for the work[1].

Indemnity costs will typically include all costs, including fees, charges, and disbursements in the course of the litigation providing that they are a reasonable amount and reasonably incurred.


When will indemnity costs be awarded?

The circumstances giving rise to an order for indemnity costs are set out in the decision of Colgate Palmolive Company & Anor v. Cussons Pty Ltd (1993) 118 ALR 248 and were more recently considered and restated by her Honour Justice White in Di Carlos v Dubois & Ors. [2002] QCA 225, wherein her Honour reinforced the need for there to be some special or unusual feature in the case to justify a court departing from the ordinary practice.[2]


The test for such departure include:

  • “as and when the justice of the case might so require”[3]; and

  • “some special or unusual feature in the case to justify the court in departing from the ordinary practice”[4].

The circumstances said to warrant the exercise of the discretion to award indemnity costs, as set out in Colgate Palmolive Company, include:


(a) the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud;


(b) evidence of particular misconduct that causes loss of time to the court and the other parties;


(c) the fact that the proceedings were commenced at or continued for

(i) some ulterior motive;

(ii) in wilful disregard of known facts; or

(iii) clearly established law;


(d) the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions;


(e) the imprudent refusal of an offer to compromise; and


(f) costs against a contemnor.[5]


Indemnity costs may also be awarded where a formal offer to settle has been issued and the offer is rejected or taken to have been rejected, and the offer was more favourable for the party rejecting the offer than the final outcome at a hearing of the matter.


However, ‘the question must always be whether the particular facts and circumstances … warrant the making of an order for payment of costs other than on a party and party basis.’[6]


Are the costs reasonable?

The question of reasonableness has been considered on a number of occasions across state and federal courts.[7] There are two elements to the question, are the costs of a reasonable amount and were the costs reasonably incurred for the proceedings.


In determining whether the costs were reasonable, the Court must also consider whether the costs were incurred for the proceeding and if so, whether or not the successful party has proven that the costs sought to be recovered are ‘reasonable’ beyond merely stating this as a fact.


The argument that because the Claimant paid the bills, they must be ‘reasonable’ ought not be, and is not, the measure of ‘reasonableness’ in the common law sense. The fact that they paid the bills is nothing more than what is expected of any company engaging professional services.


However, in the context of arbitrations regarding reasonableness of costs, during a recent speech given by the Honourable Murray Gleeson AC QC to the Australian Chapter of the Chartered Institute of Arbitrators[8], Mr Gleeson said (emphasis added):


"An award of an amount of legal costs and expenses will normally be governed by considerations of reasonableness. The parties may provide information and argument to the tribunal to enable it to form a judgment on this matter. Often this is done by requiring both parties, before they know the result, to inform the tribunal of the legal costs and expenses that have actually been incurred, and inviting comment. The theory upon which this proceeds was expressed by Judge Holtzmann, in Sylvania Technical Systems Inc. v Islamic Republic of Iran (1985) 8 Iran US CTR 39 at 332-333 as follows:


"A test of reasonableness is not, however, an invitation to mere subjectivity.


Objective tests of reasonableness of lawyers’ fees are well known. Such tests typically assign weight primarily to the time spent and complexity of the case. In modern practice, the amount of time required to be spent is often a gauge of the extent of the complexities involved.


Where the Tribunal is presented with copies of bills for services, or other appropriate evidence, including the time spent, the hourly billing rate, and a general description of the professional services rendered, its task need be neither onerous nor mysterious.


The rate of typical hourly billing rates is generally known and, as evidence before the Tribunal in various cases including this one indicates, it does not greatly differ between the US and countries of Western Europe, where both claimants and respondents typically hire their outside counsel.


Just how much time any lawyer reasonably needs to accomplish a task can be measured by the number of issues involved in a case and the amount of evidence requiring analysis and preparation.


While legal fees are not to be calculated on the basis of the pounds of paper involved, the Tribunal by the end of a case is able to have a fair idea, on the basis of the submissions made by both sides, of the approximate extent of the effort that was reasonably required. Nor should the Tribunal neglect to consider the reality that legal bills are usually first submitted to businessmen.


The pragmatic fact that a businessman has agreed to pay a bill, not knowing whether or not the Tribunal would reimburse the expenses, is a strong indication that the amount billed was considered reasonable by a reasonable man spending his own money, or the money of the corporation he serves. That is a classic test of reasonableness."


That approach seems to me to better reflect the legitimate expectations of parties to international commercial arbitration, and their lawyers, than references to taxing costs on a party and party or solicitor and client basis."


Composition of legal team

The amount of time spent in terms of legal fees is not necessary indicative of the complexities of the case. Arguably, in circumstances where a firm has utilised the resources of an excessive number of different work authors on a matter, it may be considered to be inefficient at best and extravagant with scant regard for its clients at worst.


The use of excessive numbers of different work authors is often, but not always, manifestly disproportionate to the complexity of the legal aspects of the case and will make it more difficult to recover all costs.


This also stands true in terms of the number of counsel appointed.


The leading decision on this is Stanley v Phillips[9] which was largely occupied with the question of whether the costs of multiple counsel were recoverable in that instance or whether it was a luxurious approach to preparing the case with seemingly little regard for the costs consequences.[10]


At 478 his Honour Barwick CJ stated in respect of the expenditure of legal fees on any matter:


“… The emphasis throughout is upon obtaining an adequate presentation to enable justice to be done: it is not upon the propriety of steps taken by a litigant to ensure the maximum of success in his own cause. That of course he may do but not, in my opinion, at his opponents expense.”


More recently this was considered by Justice Logan in the Federal Court in the matter of : Wide Bay Conservation Council Inc v Burnett Water Pty Ltd (No 9) [2011] FCA 661.


Wide Bay Conservation Council Inc is a decision which considered the application for a gross sum of costs under the Federal Court rules. It considered the situation where there was a relationship between the assessment of the gross sum and principle of taxation of costs in circumstances where the case involved extensive evidence but no complex points of law and whether or not counsel and solicitor’s fees ought to be permitted on a time costing basis. In particular, at [15] his Honour Logan J stated:


“… It is important in deciding whether, in a case like the present, there are special circumstances warranting a departure from the usual order as to costs not wholly to judge the course of action taken … by reference to the wisdom of hindsight”


At [97] his Honour Logan had this to say about the inefficiency of time charging:


In 1985, Sir Harry Gibbs, when giving, as Chief Justice, his speech, “The State of the Australian Judicature” (1985) 59 ALJ 522 at 526 observed: Where undue cost is caused simply by the unnecessary length of litigation, greater efficiency will provide the remedy… I have the impression that in some cases the fees charged by counsel – particularly by those who are not the most eminent – are disproportionately high. The practice of some counsel of charging for the time spent in preparation would seem to put a premium on that inefficiency.


In respect of counsel’s fees rendered on a time charging basis the High Court’s then Principal Registrar, Mr F Jones, had occasion shortly thereafter to consider that practice when taxing a bill of costs in respect of an appeal to that court: Commissioner of Taxation v Gulland in “Registrar lays down restrictive tests for taxing costs” (1985) 160 CLR 55; [1986] 7 Leg Rep 1 (Gulland). It is evident from his reasons that Registrar Jones shared with his Chief Justice a concern in relation to the premium on inefficiency which can attend time charging. He made the following observations:


I do not accept the submission on behalf of the applicants that the time cost method of assessing as the most accurate method of ascertaining the work done by counsel in preparing an appeal to the High Court. Charging by time, in my opinion, favours the inexperienced counsel [over the experienced counsel] who is familiar with the principles involved in the matter and accordingly can prepare it in less time and at less cost to the client and the unsuccessful party. (at p 2)


I note that the primary criticism of his Honour Logan was levelled at the Solicitors and Council for Burnett Water.


It should also be noted that retainer letters will likely be included in any affidavit. Typically, retainer agreements express the percent of the overall fees incurred that are likely to be recoverable in the event that the client is successful and obtains an order as to costs. So to the extent that you are addressing the issue of prospects of cost recovery on a percentage basis, be careful because any good opposing counsel will take this material into consideration and you are in effect handing them an argument to reduce your recoverable costs in the event that you are ultimately successful.

This article should not be taken as legal advice. If you have a matter that deals with the subject matter of this article then you should seek independent legal advice regarding the particular circumstances of your case.

Liability limited by a Scheme approved under professional standards legislation.

[1] R.703(3) UCPR [2] At [37] 3] Andrews v Barnes (1887) 39 Ch D 133 followed in Colgate Palmolive at 249 and Di Carlos v Dubois at [37] [4] Preston v Preston [1982] 1 All ER 41 followed in Colgate Palmolive at 249 and Di Carlos v Dubois at [37] [5] White J at [37] by reference to Colgate Palmolive at [15] on page 249 [6] Colgate Palmolive at 249 [7] Some such cases include: Carmody v June Anstee & Associates Solicitors (2001) 49 ATR 1; [2001] QSC 093; Benesman v Noosa Cat Aust Pty Ltd [2001] QDC 079; Beardmore v Franklins Management Services Pty Ltd [2003] 1 Qd R 1; [2002] QCA 60; Grice v Queensland [2005] QCA 298 [8] The Hon Murray Gleeson AC, "Writing Awards in International Commercial Arbitrations" ((paper presented to the Chartered Institute of Arbitrators (Australia) Limited, Sydney, 31 October 2014), p 20. Available at: https://www.ciarb.net.au/wp-content/uploads/resources/writing_awards_in_international_commercial_arbitration.pdf. [9] [1966] 115 CLR 470 [10] Stanley v Phillips [1966] 115 CLR 470 at 476


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