Lenox Hewitt (Plaintiff) v Queensland Newspapers Pty Ltd (Defendant) [1998] ACTSC 273 (13 August 1998)

  
  
  
  

  
   

  

   IN THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY

   CRISPIN J

  

  

   Costs - taxation
of costs on an indemnity basis - whether Order 65 rule 62
applicable - all costs to be allowed unless unreasonably incurred or of
unreasonable amount - whether lump sum may be determined in lieu of item by
item taxation - need for discretion to be exercised judicially
- claimant
entitled to be heard on question of whether gross sum should be determined,
whether any reduction justified and amount
that should be determined.

  

   Review of Taxation of Costs - adequacy of reasons.

  

   Supreme Court Rules

   Federal Court Rules

  

   Quirk v Bawden [1992] ACTSC 118;  (1992) 112 ACTR 1

   Beach Petroleum NL & Anor v Johnson & Ors (1995) 135 ALR 160

   Leary v Leary [1987] 1 All ER 261

   Northern NSW FM Pty Ltd v ABT and Anor (1990) 26 FCR 39 at 42

  

  

   CANBERRA, 24 June and 23-24 July 1998 (hearing), 13
August 1998 (decision)

   #DATE 13:8:1998

  

   Counsel for the Plaintiff: Mr R Refshauge

   Instructing Solicitors: Freehill
Hollingdale & Page

   Counsel for the Defendant: Mr R Travers

   Instructing Solicitors: Blake Dawson Waldron

  

  

   THE
COURT ORDERS THAT:

  

   1. The appeal be allowed.

   2. The taxation of costs by the Deputy Registrar be set aside.

   3. The
bills of costs submitted by the plaintiff's solicitors be taxed by
another taxing officer.

  

  

   CRISPIN J

  

   1. This
is an appeal against the review of a taxation of costs awarded on
an indemnity basis to the successful plaintiff in a defamation
action. The
action was heard by Higgins J on 22 and 23 March 1995 and his Honour gave
judgment on 5 June 1995. The question of costs
which had been reserved was
argued on 27 May 1996 and his Honour gave judgment on that issue on 18 July
1996. A bill of costs was
subsequently drawn and filed on or about 10 March
1997 and an appointment was made to tax the bill on 8 May 1997.

  

   2. On 20
March 1997 a memorandum of fees was received from junior counsel
which claimed a significantly higher amount than that previously
quoted
orally. The plaintiff's solicitors advised the defendant's solicitors of their
intention to amend the bill of costs in order
to claim the larger amount.

  

   3. The time appointed for the taxation was vacated by consent and a further
appointment made
for 26 May 1997. On 15 May 1997 a copy of the defendant's
notice of objection to the plaintiff's bill of costs was served. The notice
consisted of general submissions followed by expensive objections to
particular items claimed.

  

   4. At the hearing on 26 May
1997 the plaintiff's solicitors provided a
written outline of argument in response to the general submissions contained
in the opening
pages of the defendant's notice of objections and discussion as
to the general principles which should govern the conduct of the
taxation then
ensued. The taxing officer then made a number of rulings. In particular, she
ruled that the bill would be taxed on
the basis that costs would be allowed
unless the defendant could prove that any item was unreasonable in amount or
was unreasonably
incurred. She granted the plaintiff leave to update the bill
of costs but refused his application to amend it in order to claim the
additional fees sought by junior counsel.

  

   5. Following that hearing agreement was reached between the parties as to
the hourly
rates that were appropriate for the work done by the plaintiff's
solicitors and as to counsel's fees.

  

   6. On 25 July 1997
there was a further hearing and the taxing officer
embarked upon a consideration of the defendant's objections on an item by item
basis. However, after about an hour she raised the possibility of proceeding
to make a general assessment under Order 65 rule 62
of the Supreme Court Rules
and adjourned the taxation for a short period to enable the parties to
consider that proposal. Shortly thereafter she heard brief
oral submissions on
this issue. Then after a further short adjournment she indicated that she
proposed to assess the costs globally
pursuant to that rule and intended to
reduce the entire bill by one third unless the parties could reach an
agreement to the contrary
within seven days. The plaintiff's solicitors also
handed to the taxing officer an addendum to the bill of costs covering further
costs incurred to 22 July 1997. The taxation was then terminated.

  

   7. On 30 July 1997 the plaintiff's solicitors filed an
application for
review on the taxation.

  

   8. On the following day the plaintiff's solicitors provided the taxing
officer with
a second addendum to the bill of costs covering the period from
23 to 30 July 1997.

  

   9. The defendant's solicitors subsequently
served submissions in reply to
the plaintiff's applications for review and notices of objection to the first
and second addendums.
Shortly thereafter the plaintiff's solicitors responded
to the defendant's submissions.

  

   10. The plaintiff's solicitors later
provided a third addendum to the bill
of costs covering costs incurred during the period 31 July 1997 to 8 September
1997. The defendant's
solicitors wrote to the taxing officer by letter dated 9
October 1997 objecting to the costs claimed in the third addendum and seeking
an opportunity to file a further notice of objection.

  

   11. The decision on the review of the taxation was given on 4 November
1997. The taxing officer adverted to the fact that the first objection which
had been dealt with had resulted in the total amount
claimed, which she
thought was $9,795.84, being reduced by $3,000 on the basis of her view that
the claims were extravagant and needed
to be reduced to an amount that was not
unreasonable. Because of the way in which the particular components of the
amount claimed
had been set out there was some disagreement between the
parties as to whether the total amount claimed in relation to that item
was
the figure mentioned by the taxing officer or a larger sum. However, it is
clear that the amount was reduced by slightly more
or less than 30%. The
taxing officer commented that some further items in the bill had also been
reduced after what she described
as lengthy and often repetitive argument.

  

   12. The taxing officer referred to her ruling which had been in the
following terms:

  

  

   "Any benefit in continuing with the taxation on an item by item basis is
outweighed by the benefit to the Court and the
parties in assessing this bill
at a gross sum. I reject the submission that I don't have the power to so
assess. I have looked at
and taken into account both global and individual
items objected to. I propose to assess this globally reducing the bill by one
third
unless the parties can reach some other agreement within seven days."

   13. She referred to the fact that a party dissatisfied
with an assessment
under Order 65 rule 62 may invoke the provisions of Order 65 rule 64 to obtain
a review of that assessment and
that Order 65 rule 65 then requires the taxing
officer to state "the grounds and reasons of his or her decision and any
special facts
or circumstances relating thereto". She then proceeded to
discuss the submissions made on behalf of the plaintiff in relation to
the
review and to give reasons for the decision she had made. She confirmed that
she proposed issuing a final certificate in respect
of the bill filed on 5
March 1997, effectively reducing the total amount from $187,249.66 to
$124,833.11.

  

   14. The taxing
officer also indicated that she had considered the three
addendums and made a global assessment in relation to the first two. The
total
amount of costs claimed in relation to the first addendum had been $20,971.73
but she allowed only the sum of $10,000.00. The
total amount sought in the
second addendum was $17,175.73 but she allowed only the sum of $7,000.00. The
amount sought in relation
to the third addendum was $2,319.59 but the taxing
officer observed that the work done included the preparation of submissions
between
31 July and 8 September 1997 and that she did not propose to allow any
of this amount as the submissions had not been sought by the
court. She
expressed the view that it was unreasonable for the plaintiff's solicitors to
continue to run up costs in the manner which
she felt they had been doing.

  

   15. The decision was attacked on a number of bases.

  

   16. First, Mr Refshauge who appeared
for the appellant submitted that Order
65 rule 62 can have no application to the taxation of costs ordered to be paid
on an indemnity
basis. He pointed out that the terms of the rule contemplate
that it may be invoked on a number of grounds including unnecessary
delay but
submitted that those grounds would be inapplicable to the taxation of costs on
an indemnity basis because the only relevant
issue is whether any of the costs
claimed were of an unreasonable amount or had been unreasonably incurred. He
also submitted that
the rule appears to contemplate a different onus of proof
than that properly applicable to indemnity costs. The rule provides that
if
for the reasons stipulated it appears that the costs are excessive then the
taxing officer shall allow "only such an amount of
costs as is reasonable and
proper". Prima facie, this suggests that it is incumbent upon the claimant to
demonstrate that the costs
charged were reasonable and proper and that they
should be allowed only to the extent to which that is so demonstrated. On the
other
hand, in Quirk v Bawden [1992] ACTSC 118;  (1992) 112 ACTR 1 Higgins J, with whose reason
for judgment Miles CJ and Gallop J expressed agreement, said, at 6, that the
following
statement in part 52, rule 28A of the Rules of the Supreme Court of
New South Wales reflected the meaning of an indemnity costs order where that
was made
under the court's inherent power:

  

  

   "On a taxation on the indemnity basis, all costs shall be allowed except in
so far
as they are of an unreasonable amount or have been unreasonably
incurred and any doubts which the taxing officer may have as to whether
the
costs were reasonably incurred or were reasonable in amount shall be resolved
in favour of the receiving party."

   17. Mr Travers,
who appeared for the respondent, submitted that the
procedure contemplated in Order 65 rule 62 could extend to the taxation of
costs
on an indemnity basis and cited the opening words as establishing that
the rule could be invoked "upon any taxation". I accept this
submission.
However, if the rule is invoked in the taxation of costs on an indemnity
basis, the principles governing such a taxation
must be kept firmly in mind.

  

   18. Any finding that the costs appear to be excessive due to unnecessary
delay, misconduct,
negligence or some other cause is merely a precondition to
invoking the rule. Even the limited consideration required by that test
must
be influenced by the basis upon which the bill is to be taxed. If the costs
are to be paid on an indemnity basis then the rule
may be invoked only if the
costs appear to be excessive in the sense that they appear to be of an
unreasonable amount or to have
been unreasonably incurred.

  

   19. As previously mentioned, once the rule is invoked, the taxing officer
is enjoined to allow
only such an amount of costs as is reasonable and proper.
Whilst those words would normally suggest that the onus lies upon the claimant
to satisfy the those requirements in relation to each item claimed, I do not
think that the language is so intractable that the rule
must be held to have
no application to costs ordered to be paid on an indemnity basis. In those
circumstances, of course, the costs
which would be fair and reasonable would
extend to all costs claimed except insofar as they were of an unreasonable
amount or had
been unreasonably incurred. Furthermore, it would be incumbent
upon the taxing officer to resolve any doubts about either of those
criteria
in favour of the receiving party.

  

   20. Secondly, Mr Refshauge argued that the rule did not entitle a taxing
officer
to discount costs payable on an indemnity basis by forming a general
impression and applying an overall discount. He conceded that
such a broad
brush approach might be appropriate if justified by particular circumstances.
For example, if a taxing officer were
to determine that all fees had been
calculated at an hourly rate which was unreasonably high even for costs on an
indemnity basis
then it might be appropriate to reduce the account, less
disbursements, by an amount which corresponded to the proportion by which
the
hourly rate was so excessive. Alternatively, if the taxing officer were to
decide that it had been unreasonable to carry out
certain actions in
preparation for the case then the bill might be reduced by an amount which
corresponded to the proportion of costs
spent on those items compared with the
total costs incurred. Those concessions were properly made. However, Mr
Refshauge maintained
that it was not otherwise appropriate to adopt a broad
brush approach to the taxation of bills of this nature.

  

   21. It is
true that in Beach Petroleum NL & Anor v Johnson & Ors
(1995) 135 ALR 160 von Doussa J took a broad brush approach to the
taxation of
costs ordered to be paid on an indemnity basis and proceeded to reduce them by
7_%. However his Honour did so pursuant
to Order 62 rule 4 (2) of the Federal
Court Rules which authorises the court to make a further order to the effect
that the relevant party shall be entitled to a "gross sum specified
in the
order instead of the taxed costs." This power is obviously quite different
from that conferred upon a taxing officer pursuant
to Order 65 rule 62.
Furthermore, his Honour was the trial judge and was able to act on his own
impression formed during the course of the trial that
the applicants had
sometimes "erred on the side of excessiveness". His Honour was also able to
identify certain other matters properly
requiring some reduction.

  

   22. Since costs claimed pursuant to an indemnity costs order should be be
reduced only if they
are of an unreasonable amount or have been unreasonably
incurred, Order 65 rule 62 should not be taken to authorise any reduction
unless the taxing officer finds that the amounts claimed were unreasonable for
either
of these reasons. Any doubt on that issue must be resolved in favour of
the claimant. Furthermore, even where the taxing officer
determines that the
amount claimed is unreasonable it seems to me that it should be reduced only
by that amount by which it exceeds
the bounds of reasonableness. It would not
be appropriate to allow only an amount which corresponds to that prescribed in
a court
scale or which would otherwise be allowed on the taxation of costs on
a party-party basis. Mr Travers did not contend to the contrary.
If Order 65
rule 62 is to be invoked it must be applied in this context. The amount
claimed must not be reduced save to the extent
that the objecting party is
able to establish that the costs claimed exceed the bounds of reasonableness
and it will be necessary
for the objecting party to point to grounds clearly
justifying any such conclusion. There may be cases in which it is apparent,
even
on a broad overview, that the charges are unreasonable. However such
cases are likely to be comparatively unusual. In most cases
a broad brush
approach would at most lead to a doubt about the reasonableness of the charges
and the taxing officer would be constrained
to resolve that doubt in favour of
the claimant. Furthermore, even in such a clear case it may be quite
impossible to determine where
the bounds of reasonableness lie and hence, to
determine what should be allowed without descending to some particularity.

  

 
 23. Thirdly, it was submitted that the taxing officer failed to identify
any reason for her decision to proceed in accordance with
the rule. I am
unable to accept this submission. In my view it is quite clear that the taxing
officer thought that the benefit of
proceeding with the taxation on an item by
item basis would be outweighed by the costs involved in such an exercise.

  

   24.
Fourthly, it was submitted that even if this reason was adequately
articulated, a prediction that an item by item taxation was likely
to be time
consuming and therefore expensive was insufficient to justify the assessment
of a gross sum and that there was no other
reason justifying such a course. I
am again unable to accept this submission. In Leary v Leary [1987] 1 All ER
261 the Court of Appeal
considered an English rule of similar effect to Order
62 rule 4(2) of the Federal Court Rules and observed that its purpose was to
avoid the "expense, delay and aggravation involved in protracted litigation
arising out of taxation".
Notwithstanding the difference between the rule of
this court and that discussed by the Court of Appeal it seems to me that it is
open to a taxing officer to adopt the course of making a gross assessment of
costs in order to avoid the expense, delay and aggravation
of a protracted
taxation on an item by item basis.

  

   25. Fifthly, it was submitted that the plaintiff had effectively been
denied natural justice because Mr Refshauge had not been given the opportunity
to be heard in relation to the bulk of the item by
item objections or as to
the quantum of any gross sum which might be appropriate.

  

   26. As Purchas LJ observed in Leary v Leary
, at 265, the discretion
created by such a rule must be exercised in a judicial manner. His Lordship
cited examples of cases in which
a judge could be said to have acted
unjudicially, including clutching a figure out of the air without having any
indication as to
the estimated costs and refusing a request to hear
submissions when an application to be heard is made on reasonable grounds. His
Lordship commented that there would be many cases in which a judge might be
assisted by submissions as to whether a gross figure
should be assessed and if
so at what figure. He observed, however, that there was no statutory
obligation to receive such submissions
provided that the judge observed the
rules of natural justice. Of course, the rules of natural justice include the
audi alterem partem
rule and his Lordship presumably had in mind that, since
it was the trial judge who was determining whether to make a lump sum order
for costs in lieu of the entitlement that would otherwise have accrued under
the rules, there may be circumstances in which the parties
had already been
sufficiently heard in relation to that issue or in which, having regard to the
normal practice in that particular
court, should be taken to have left the
matter to the judge. In Beach Petroleum NL & Anor v Johnson & Ors von
Doussa J referred,
at 162, to the decision in Leary v Leary with evident
approval but commented that the power must be exercised judicially and after
giving the parties an appropriate opportunity to make submissions on the
matter. In the case of a taxation under Order 65 rule 62 where the matter is
determined not by the trial judge but by a taxing officer it is clear that
each party must be given an opportunity
to be heard not only in relation to
the decision to proceed to assess a gross sum but as to the figure that should
be awarded.


 

   27. Furthermore, the exercise to be undertaken by a taxing officer is
fundamentally different to that undertaken by a judge,
whether under the
English rules or the rules of the Federal Court of Australia. In either of the
latter cases a judge is empowered
to make a fresh order in substitution for
any rights which may have arisen under a previous order or by virtue of the
rules of court.
In undertaking such an exercise it may be open to the judge to
make an order which differs to some extent from the effect of the
previous
order. On the other hand a taxing officer is obliged to implement the order
made by a judge by proceeding to tax the costs
payable pursuant to it. He or
she has no power to vary the order.

  

   28. In the case of an indemnity costs order the claimant
part must be given
an opportunity to be heard in relation to any contention that costs are of an
unreasonable amount or have been
unreasonably incurred.

  

   29. The nature and extent of the necessary opportunity to be heard will
obviously depend upon the
nature of the objection or objections. If the
objection relates to a general matter such as the hourly rate at which fees
have been
calculated then it will be necessary to give the claimant the
opportunity to make submissions on that issue. On the other hand, if
the
objector contends that the time spent on many individual items of work was
unreasonable then the claimant must be given the opportunity
of answering each
such contention. Of course, the audi alterem partem rule does not necessarily
involve a requirement that each party
be given the opportunity to make
submissions orally and in an appropriate case it may be sufficient to give the
claimant the opportunity
to respond to the contentions in writing, whether by
notations on the notice of objection or otherwise.

  

   30. In the present
case the taxing officer had extensive objections in
writing from the objector but there had been no written responses from the
claimant
and it was not suggested that written responses would normally have
been expected. However, Mr Travers submitted that the plaintiff
had been given
the following opportunities to be heard:

  

   (a) Mr Refshauge had been invited to make oral submissions as to
whether it
may have been appropriate to assess a gross sum pursuant to Order 65 rule 2;

  

   (b) the plaintiff had an opportunity
to make submissions on the review of
the taxation and in fact did so;

  

   (c) the plaintiff had a further opportunity to make
submissions in reply to
the defendant's submissions on that review and again did so.

  

   31. He also relied upon the taxing officer's
extensive experience in the
taxation of costs.

  

   32. All these matters were persuasively argued but they do not in my view
provide an adequate answer to the plaintiff's complaint. An opportunity to be
heard about a proposed assessment of a gross sum is
no substitute for an
opportunity to be heard about a contention that the amount of that sum should
be substantially less than the
total amount of costs claimed or that some or
all of those costs should be regarded as being of an unreasonable amount or
having
been unreasonably incurred.

  

   33. There is nothing in the records which have been relied upon before me
to suggest that the
reduction of one-third of the total amount claimed in the
initial bill had been suggested by the defendant or that it was foreshadowed
by the taxing officer. Nor did the announcement of her decision include any
reasons other than a general indication that the costs
claimed were excessive.
In these circumstances I am unable to accept that in seeking a review of the
taxation the plaintiff should
be taken to have had a reasonable opportunity of
being heard in relation to the issues which the reasons for judgment
subsequently
revealed had been determinative. For example, there is no basis
for any contention that the plaintiff should have assumed that the
taxing
officer would form a view as to the reasonableness of the whole claim from an
extrapolation of her rulings on the taxation
of a few items. Hence, I do not
accept that he was given an effective opportunity to be heard in relation to
such a proposition.
Similarly, there is no basis for any contention that the
plaintiff should have assumed that the defendant's arguments in relation
to
particular objections on an item by item basis would have been taken into
account in the assessment of a gross sum. Hence he was
not given an effective
opportunity to be heard in relation to that issue.

  

   34. The defendant's submissions on the review did
not in my view raise
these issues in such a manner and in such circumstances as to justify a
conclusion that the plaintiff had an
effective right to be heard in relation
to them.

  

   35. It was not disputed that the taxing officer is both experienced and
competent in the taxation of bills of costs. However, experience and
competence is no answer to a claim that there has been a failure
to comply
with the rules of natural justice.

  

   36. Sixthly, Mr Refshauge complained that there were no reasons to
adequately
explain such a reduction. Even in the context of an indemnity costs
order it may sometimes be sufficient for a taxing officer to
indicate that the
amount claimed was regarded as excessive or unreasonable and that the amount
allowed was the highest that could
be regarded as reasonable. However, the
determination of a gross sum involving an implicit finding that much of the
costs claimed
had been unreasonably incurred required further explanation.
Without adequate reasons it is not possible to be satisfied that the
determination was soundly based.

  

   37. Finally, it was submitted that the reasons given by the taxing officer
would in any
event have been inadequate to support the decision.

  

   38. The extrapolation to which I have referred would have been a precarious
basis for the overall reduction made. The objections to the amounts claimed
for counsel's fees in the bills taxed was apparently
not pressed though, as
previously mentioned, an application to make a further claim for additional
fees sought by junior counsel
was rejected. Furthermore, even in relation to
the work said to have been done by the claimant's solicitors not all items
were challenged.
Mr Travers said that, in all, claims in the initial bill of
costs involving a total amount of about $111,000 had been challenged.
Accordingly whilst the reduction of $62,416.55 may have amounted to one third
of the overall bill of $187,249.66, it constituted
56.23% of the total amount
claimed in respect of disputed items. Given that the hourly rates had been
agreed this involved a massive
reduction. Of course, it is at least
theoretically possible that a taxing officer could be driven to conclude that
a solicitor has
charged for more than twice the time that would reasonably
have been spent on activities relevant to the preparation and conduct
of a
particular case, but such a conclusion would need to be soundly based and
reached only after the claimant had been given due
opportunity to be heard.

  

   39. I appreciate that the taxing officer also made an overall appraisal of
the quantum of fees claimed
having regard to the time said to have been spent
on particular tasks, the defendant's objections, her knowledge of the level of
fees incurred in relation to other defamation cases and her general experience
in taxing costs. Such an approach may be adequate
in many cases though there
are obvious difficulties when it is incumbent upon an objector to demonstrate
that the costs claimed were
unreasonable. At the very least it would have been
necessary for the plaintiff to have been put on notice of the various factors
which might have been relied upon in support of any such contention and given
the opportunity to be heard in relation to those factors.
For example, if the
defendant had intended to rely upon a contention that the overall amount
claimed substantially exceeded what
was normally allowed, even on an indemnity
basis in relation to defamation cases, that proposition should have been
foreshadowed
and the plaintiff given the opportunity to respond to it. The
plaintiff may have been able to dispute the existence of any such "normal"
range of costs, to demonstrate that the range was higher than the defendant
contended, explain why more work was necessary in the
present case or
otherwise impugn the ground relied upon. He was not given that opportunity.

  

   40. The reasons for judgment
given in relation to the review of the
taxation suggest that the taxing officer also took into account the fact that
the costs were
disproportionate to the amount of the damages awarded to the
plaintiff. Whilst that observation may be factually correct there is
no
principle that indemnity costs should be reduced so that they are commensurate
with the quantum of damages awarded. Indeed in
defamation cases a judicial
finding to the effect that the allegations were unjustified may of itself be
of considerable importance
to the plaintiff and the quantum of damages may be
of secondary consideration. It is true, as Mr Travers pointed out, that Order
65 rule 62 requires a taxing officer to take into account, inter alia, "the
money or value of the property to which the costs relate". However
this is
merely one of the criteria which may be taken into account in forming an
opinion as to whether it "appears" that the costs
are excessive and whether
the rule may therefore be invoked. Of course the rule applies to any taxation
of costs and there may be
many circumstances in which the money or value of a
property involved may be relevant. For example, the magnitude of the claim may
be relevant to any determination of whether the costs of briefing senior
counsel were unreasonably incurred. In the present case,
however, I am unable
to see any way in which a comparison of the amount of costs with the quantum
of the verdict could have supported
or contributed to any finding that the
costs claimed were of an unreasonable amount or had been unreasonably
incurred.

  

   41.
For these reasons the appeal must be allowed.

  

   42. Mr Travers submitted that in this event it would be appropriate to
remit
the matter to the same taxing officer for further determination. Whilst
there is much to commend this course, I am obliged to have
due regard to the
considerations referred to by Davies and Foster JJ in Northern NSW FM Pty Ltd
v ABT & Anor (1990) 26 FCR 39
at 42. In the circumstances I propose
directing that further taxation of the relevant bill of costs be conducted by
another taxing
officer.