New costs regime for the Supreme Court of Victoria: Supreme Court (Chapter I New Scale of Costs and Other Costs Amendments) Rules 2012

The Supreme Court (Chapter I New Scale of Costs and Other Costs Amendments) Rules 2012 is a significant amendment to Order 63 (costs) and the Scale of Costs in the Supreme Court (General Civil Procedure) Rules 2005. The amendment commences on 1 April 2013 in relation to all proceedings irrespective of commencement date (that is, it applies to proceedings commenced before 1 April 2013).

2 major changes include the removal of the 3 current bases of taxation (being party-party, solicitor-client and indemnity) and the replacement with ‘standard basis’ (being all costs reasonably incurred and of reasonable amount) and ‘indemnity basis’; and the alteration of the Scale of Costs to a time charging basis of 6 minute units.

In terms of the time-value of the Scale of Costs, the following are the hourly rates for attendances by a legal practice (based on the 6 minute units):

• Item 1(a) attendance requiring legal skill or knowledge, $36 per 6 min, being $360 per hour.
• Item 1(b) attendance requiring legal skill or knowledge by an employee who is not a legal practitioner, $27 per 6 min, being $270 per hour.
• Item 1(c) attendance not requiring legal skill or knowledge capable of being performed by a clerk $21 per 6 min, being $210 per hour.

Where the attendances in the Scale of Costs are not based on folios or individual attendance charges, they are based on the timed charges above. 

Counsel's fees are a maximum of $500 per hour and $5,000 per day for junior counsel, and $750 per hour and $7,500 per day for senior counsel.

The scale is expressed to be GST exclusive, so the above rates are the GST exclusive figures.

I have included below the explanation from the Supreme Court, followed by the Practice Note (1 of 2013):

Explanatory note

Commencing on 1 April 2013 the Supreme Court (Chapter I New Scale of Costs and Other Costs Amendments) Rules 2012 introduce a new scale of costs for the Supreme Court and make significant amendments to aspects of the costs rules. 

The new Rule 63.90 will provide that the Rules as amended

“apply to all things done or required to be done or omitted to be done on or after 1 April 2013 in or in relation to, any proceeding in the Court… regardless of the date of commencement of the proceeding”.

The Court has also issued Practice Note No 1 of 2013 which includes a summary of the changes, an explanation of the process for applications for allowance of counsel fees in excess of scale, and the guideline figure for allowance for the reproduction of documents (22 cents per printed side of a page). 

All lawyers practising in the Supreme Court civil jurisdiction should familiarise themselves with the changes. 

In summary, the major changes to the Rules are

• The current bases for taxation will be replaced with the following:

i. standard basis- all costs reasonably incurred and of reasonable amount 

ii. indemnity basis- (as now) all costs except in so far as they are of an unreasonable amount or have been unreasonably incurred.

• Interlocutory costs orders are not to be taxed until the completion of proceedings unless the Court orders otherwise. 

• The parties’ costs in the proceeding, unless the Court orders otherwise, will include reserved costs, the cost of an interlocutory application if no order is made or the order is silent as to costs, and costs thrown away by reason of amendment to a pleading or of and occasioned by amendment to a pleading. 

• Proceedings for debt or damages which do not recover amounts over $100,000 only attract County Court costs unless the Court orders otherwise. 

The main changes to the Scale of Costs are:

• The scale is exclusive of GST 

• The scale has been changed to allow a higher hourly rate for attendances charged in 6-minute units in line with most time recording systems currently used by law firms. The hourly rates actually charged by the individuals who performed the work will need to be included in the bill as well. 

• The cost of photocopying is entirely discretionary in the scale. Guidelines for photocopying will be issued from time to time. 

• The scale provides an allowance for solicitors to approve documents drawn by Counsel prior to filing and service. 

• The scale provides for the leaving of messages by email or SMS or other means that are 20 words or less. 

• The charges for letters include delivery by any means. No additional charge applies. 

• The scale includes a charge to receive correspondence by any means and placing a copy of the letter on a file. This includes the printing of emails or facsimiles. 

• The scale differentiates between perusal, scanning and examination of documents. 

• Items 11, 12, and 13 of the scale include allowances for review and consideration, delegation and supervision, and research. 

• The scale provides allowances for redaction and collation, pagination and indexing of documents.

• Item 17 of the scale includes an allowance of an additional amount having regard to the circumstances of the case. 

• Fixed fees are provided in relation to Corporations short form bills. Additional costs in the way of reasonable disbursements can be allowed.

Tips

• An order for costs will by default mean reasonable 'costs' (standard basis) not the lower recovery test of 'necessary or proper' (party and party basis). Parties seeking orders on a different basis will require a specific order to that effect.
• An order for indemnity costs means on scale - so if the intention is to order that costs be taxed on the basis of the costs agreement in place between the party and their lawyers this will need to be articulated in the order.
• Parties who wish to recover interlocutory costs before the conclusion of proceedings will need to apply for a order that the costs be taxed forthwith.
• Amendments to pleadings will be costs in the proceeding unless the Court orders otherwise. If a party seeks costs 'thrown away' (i.e. wasted as a result of the amendment) or costs 'of and occasioned by' (i.e. future costs arising from the amendment) they need an order to this effect.
• Counsel must ask for an order if they are contending for costs to be recovered from the other party over and above the maximums in the scale ($7,500 for senior counsel and $5,000 for junior counsel). They can either seek an order for a specific sum, or an order that a figure above the maximum is appropriate with the quantum to be determined by the Costs Court on taxation.

Practice Note (No. 1 of 2013)

The New Scale of Costs and Counsel fees

1. The Chief Justice has authorised the issue of the following practice note.

2. Significant changes have been introduced to the Supreme Court of Victoria scale of costs contained in Appendix A and to the provisions in Rule 63 of the Supreme Court (General Civil Procedure) Rules 2005 generally. The changes are effective from 1 April 2013 and apply to work undertaken after that date.

3. The basis of allowance of costs has changed to abolish the default “necessary or proper” test for party and party costs. The standard basis of costs that are “reasonable in amount and reasonably incurred” is now the usual basis for assessment or taxation of party and party costs. Indemnity costs may be allowed if the Court so orders.

4. The scale in its preamble allows the Judge, Associate Judge, Costs Judge, Judicial Registrar or costs registrar full discretion to allow any fee, cost or disbursement in full or in part or such other fee, costs or disbursement as is fair or reasonable to compensate for the work actually done.

5. Item 19 in the new scale now contains maxima fees for Counsel. Where costs are taxed pursuant to an order of the Supreme Court, Counsel’s fees in excess of scale cannot be allowed by the Costs Court unless the Supreme Court otherwise orders. Therefore where costs are sought pursuant to an order of the Supreme Court, and a party seeks sums for Counsel’s fees in excess of the maximums in the scale, an application will need to be made to the Supreme Court at the time a costs order is sought and an order made that Counsel’s fees in excess of the scale be allowed before they can be allowed on taxation by the Costs Court.

6. The Supreme Court may fix the rate or amount of Counsel’s fees above scale, or direct the Costs Court to allow the fees of Counsel in excess of scale when assessing or taxing the costs. In the latter case the Costs Judge, Judicial Registrar or Costs Registrar will fix the rate of charge in excess of the scale amount.

7. The Costs Court will only have a full discretion to allow fees in excess of the maximum in limited circumstances. For example, pursuant to a Notice of Discontinuance or arising from the acceptance of a formal Offer of Compromise, or taxation pursuant to the terms of a Release, or in reviews under the Legal Profession Act 2004 where the reviews are conducted in accordance with scale.

8. Additional changes have also been made including:

(a) The scale is exclusive of GST. This amendment allows legal practitioners who charge their clients on scale to add GST to the total sum to be charged. 

(b) The scale has been changed to allow a higher hourly rate for attendances but now in 6-minute units in line with most time recording systems currently used by law firms. The hourly rates actually charged by the individuals who performed the work will need to be included in the bill as well. 

(c) The cost of photocopying is entirely discretionary in the scale. Guidelines for photocopying will be issued from time to time. The guide is not intended to limit the discretion to allow higher or lower fees if it is considered appropriate. Guidelines appears at paragraph 11 below. 

(d) The scale provides an allowance for solicitors to approve documents drawn by Counsel prior to filing and service. 

(e) The scale provides for the leaving of messages by email or SMS or other means that are 20 words or less. 

(f) The charges for letters include delivery by any means. No additional charge applies. 

(g) The scale includes a charge to receive correspondence by any means and placing a copy of the letter on a file. This includes the printing of emails or facsimiles. 

(h) The scale differentiates between perusal, scanning and examination of documents. 

(i) Items 11, 12, and 13 of the scale include allowances for review and consideration, delegation and supervision, and research. Applications to the Costs Court for allowances for these items will need to be supported by file notes or other means. The Costs Court has a full discretion to make allowances for claims made pursuant to these items depending on the proof produced and the particular claims made for perusal, scanning and examination in the bill of costs. 

(j) Any claim made for research will not be allowed unless the research involves a legal question of some complexity that is not procedural in nature.
(k) The scale provides allowances for redaction and collation, pagination and indexing of documents. These allowances are for the time taken to complete each task that is reasonable in the circumstances. 

(l) Item 17 of the scale includes an allowance of an additional amount having regard to the circumstances of the case. Rule 63 provides that bills of costs are to be prepared on an itemised and chronological basis without differentiation between instructions for brief or preparation for trial work and any other work. 

(m) Fixed fees are provided in relation to Corporations short form bills. Additional costs in the way of reasonable disbursements can be allowed.

10. Appendix B of the scale includes allowances for Witness Expenses and interpreters’ fees. An additional fee or higher fees may be allowed if the Court makes an order for a higher rate.

11. Guide to reproduction of documents

The scale of costs allows a discretion in relation to copy documents. The new scale provides at item 4 that reproduction by photocopy or other machine made copy including hard copies of electronic documents shall be at the discretion of the Costs Court.

As a guide, the Costs Court will allow reproduction as follows:

Reproduction— 

for each printed side of a page
0.22

If printed out of the office, the amount charged by the service provider should be claimed as a disbursement and will be allowed if reasonable.

Security of payment: Lahey Constructions Pty Ltd v Trident Civil Contracting Pty Ltd - [2013] NSWSC 176

The matter of Lahey Constructions Pty Ltd v Trident Civil Contracting Pty Ltd [2013] NSWSC 176 was an application for a declaration, before Stevenson J, in respect of an Adjudicator's adjudication.

Trident was a subcontractor engaged by Lahey to carry out earth works at the North Beach Pavilion in Woolongong. Clause 40 of the subcontract concerned variation claims, placing an onus on the subcontractor to make a variation claim within 2 days of a direction by Lahey to vary works. Lahey gave Trident an instruction (which Lahey denied was a variation) concerning the earthworks, and Trident alleged that this was a variation in a payment claim made 14 months after the work was completed. There was no variation claim made by Trident under the contract.

Particularity of payment schedules

Lahey issued a payment schedule (under the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act) broadly denying liability for the variation, stating: 'and as such we refer you to the Variation & Notice clauses within the contract'. Stevenson J noted that the Act states that a payment schedule 'must indicate why' the amount in the payment schedule is less than the amount claimed as well as 'reasons' for withholding payment (note: the equivalent Victorian act sets out this requirement in s15(3)). Stevenson J held that although particularity is required to 'a degree reasonably sufficient to apprise the parties of the real issues in dispute', sometimes the issue 'has been so expansively agitated in prior correspondence that the briefest reference in the payment schedule will suffice to identify it clearly' (at [30]:

[28] A payment schedule need not articulate the response to the payment claim as precisely as would be required in a pleading. However, "cryptic or vague" statements in a payment schedule as to the reasons for withholding payment are not sufficient. Particularity is required "to a degree reasonably sufficient to apprise the parties of the real issues in dispute" and "to enable the claimant to make a decision whether or not to pursue the claim and to understand the nature of the case it will have to meet in an adjudication". Sometimes, however, the issue "has been so expansively agitated in prior correspondence that the briefest reference in the payment schedule will suffice to identify it clearly": Multiplex Constructions Pty Ltd v Luikens [2003] NSWSC 1140 at [77] per Palmer J; cited with approval in Clarence Street Pty Ltd v Isis Projects Pty Ltd [2005] NSWCA 391; (2005) 64 NSWLR 448 at [27] per Mason P, with whom Giles and Santow JJA agreed; see also Nepean Engineering Pty Ltd v Total Process Services Pty Ltd [2005] NSWCA 409; (2005) 64 NSWLR 462 at [24] per Hodgson JA.

Here, there was a previous application under the Act in relation to an earlier dispute, and the previous determination dealt with these contentions. Stevenson J held that the issue the subject of the adjudication had been 'expansively agitated' between the parties and the brief reference to that issue in the payment schedule was sufficient for the purposes of the Act.

Jurisdictional error

Lahey submitted to the Adjudicator that Trident was barred from claiming a variation as it had not complied with the contract. In ordering that Lahey pay Trident the amount claimed in Trident's payment claim, the Adjudicator held as follows:

"[Lahey] submits that the conditions of contract provide a bar on any variation made other than in accordance with the contract conditions. The Act provides at section 3 that a person who undertakes to carry out construction work under a construction contract is entitled to receive and is able to recover progress payments in relation to the carrying out of that work. I determine that where [Trident] has undertaken construction work it is entitled to payment for that work and the conditions of contract do not provide a bar to the payment for that work".

Lahey submitted that the Adjudicator 'misapprehended the effect of the Act; that he thereby failed to discharge his statutory function under the Act and failed to consider something that the statute required him to consider, namely the terms of the contract between the parties.' Stevenson J agreed, and held that the Adjudicator committed jurisdictional error and failed to provide the parties natural justice by deciding a contractual issue on a basis not advocated by the parties.

Lahey submitted that the jurisdictional error was 'Proceeding in the absence of a jurisdictional fact; disregarding something that the relevant statute requires to be considered as a condition of jurisdiction, or considering something required to be ignored; and misconstruction of the statute leading to misconception of functions' [Chase Oyster Bar Pty Ltd v Hamo Industries Pty Ltd [2010] NSWSCA 190; (2010) 78 NSWLR 393, and Kirk v Industrial Court of New South Wales (2010) 239 CLR 531] That is, the Adjudicator misapprehended the nature of his powers by disregarding something that the Act required to be considered as a condition of jurisdiction, leading to a misconception by him of his functions. Stevenson J held that the Adjudicator's reasons showed that the Adjudicator felt entitled to reject the bar to variation point by reference to the Act, and in doing so the Adjudicator fell into error.

Stevenson J, referring to the objects of the Act in s3 (also s3 in the equivalent Victorian Act), held that a fundamental matter for consideration by the Adjudicator is the terms of the contract between the parties, and that the Adjudicator had no basis to simply ignore the terms of the subcontract. As such, Stevenson J held that the misapprehension of the role played by s3 of the Act and the Adjudicator's failure to have regard to the terms of the subcontract was jurisdictional error.

Denial of natural justice by deciding a point not agitated

Stevenson J also noted that neither party submitted to the adjudicator that the Adjudicator should decide the bar to variation issue with reference to s3 of the Act. Stevenson J referred to McDougall J in Musico v Davenport [2003] NSWSC 977 at [107]-[108]: "'It follows, in my opinion, that where an adjudicator determines an adjudication application upon a basis that neither party has notified to the other or contended for, and that the adjudicator has not notified to the parties, there is a breach of the fundamental requirement of natural justice that a party to a dispute have 'a reasonable opportunity of learning what is alleged against him and of putting forward his own case in answer to it'". Stevenson J held that the Adjudicator acted in breach of the requirements of natural justice. Stevenson J also noted that had the Adjudicator alerted the parties to the intention to decide the bar to variation point by reference to s3 of the Act, it is obvious that submissions could have been put to change the Adjudicator's mind on the point (referring to Watpac Constructions v Austin Corporation [2010] NSWSC 168 at [144]-[147]).

Lahey Constructions Pty Ltd v Trident Civil Contracting Pty Ltd [2013] NSWSC 176 is an important case. It decides 3 critical issues which commonly occur in the context of security of payment claims, that is, adequacy of particulars in a payment schedule, the necessity for the adjudicator to consider the terms of the contract and the necessity for the adjudicator to decide the matter on the arguments raised by the parties.

Offers of compromise and 'cost inclusiveness': Victorian Education Foundation Ltd v AC Hall Airconditioning Contracting Pty Ltd [2013] VSCA 32

Late last year I presented a seminar on Offers of Compromise and Calderbank offers with Daryl Williams, S.C., to the Victorian Bar. I was going through that paper again today and, whilst trawling through AustLII, happened to see a fresh judgment in the Victorian Supreme Court of Appeal which discussed 'cost inclusive' offers of compromise.

The matter of Victorian Education Foundation Ltd v AC Hall Airconditioning Contracting Pty Ltd [2013] VSCA 32 was a leave to appeal application (Neave and Priest JJA) from a costs order made by a Judge of the County Court of Victoria (Ginnane J). There were orders made by the County Court that VEF pay AC Hall the sum of $131,430, and costs of $34,254.68 were awarded to AC Hall based on an offer of compromise made by AC Hall on 12 October 2011 for $145,000 plus costs. Costs were ordered to be paid on a party-party basis to the date of the offer, and thereafter on a solicitor-client basis. An issue arose because there were earlier offers made including:

• A purported offer of compromise on 8 July 2010 by VEF for $165,000 expressed to be 'in full and final settlement of its claim', purportedly pursuant to Order 26 of the County Court Rules; and
• A purported offer of compromise on 29 November 2010 by AC Hall for $165,000 expressed to be 'in full and final settlement' of its claim.

The County Court held that VEF's offer was an 'all in' offer and fell foul of the Rules, following Aquatec-Maxon Pty Ltd v Barwon Region Water Authority (No 8) [2007] VSC 363. The County Court also held that it was not a 'Calderbank' offer as it was impossible to determine whether VEF achieved a more favourable outcome than was offered. The County Court held that the offer of AC Hall for $145,000 was more favourable to VEF than the judgment sum, and AC Hall was entitled to costs under Order 26. 

VEF clearly would not be happy with this outcome, since the order plus costs was around $165,000, which was the amount first offered by it to AC Hall. 

The Rule surrounding the controversy is Rule 26.03 which provides as follows:

(7) Upon the acceptance of an offer of compromise in accordance with paragraph (4), unless the Court otherwise orders, the defendant shall pay the costs of the plaintiff in respect of the claim up to and including the day the offer was served.
(8) If an offer of compromise contains a term which purports to negative or limit the operation of paragraph (7), that term shall be of no effect for any purpose under this Part.

I have discussed two interesting aspects of the judgment below, being the re-iteration by the Court of Appeal that an offer of compromise cannot be expressed to be costs inclusive, and whether the meaning of an offer of compromise is to be determined objectively or subjectively.

Priest JA, with Neave JA agreeing, refused the application for leave to appeal. Priest JA held that since the offer was expressed as being in 'full and final settlement' the County Court was correct in interpreting the offer of compromise as being inclusive of costs, and therefore was proscribed by Rule 26.03(8) (at [24] to [25]). Priest JA considered the reasoning of Giles J in Associated Confectionery (Aust) Ltd v Mineral and Chemical Traders Pty Ltd (1991) 25 NSWLR 349. In that case, an offer of compromise was expressed to be 'inclusive of costs'. Giles J held that this took the offer outside of the operation of the Rules, which Priest JA noted was almost precisely the same terms as Rule 26.03(8). 

Priest JA then considered whether the term concerning inclusiveness of costs could be severed from the offer. His Honour held that it would be impossible to do so and leave any part of the offer salvageable (at [29]).

VEF argued that the County Court should have held that AC Hall was under no misapprehension as to what the offer meant, particularly where AC Hall made a later offer in similar terms. Priest JA held that this argument was without substance as (first) it was not possible to determine what the offer actually meant, and (secondly) in determining what an offer means it falls to be construed objectively according to its terms and not according to a subjective belief that a party might have harboured as to its terms. Priest JA referred to Theiss Contractors Pty Ltd v SCI Operations Pty Ltd (Unreported, 21 September 1990, Sup Crt NSW, Rogers CJ Comm D) in support of this latter proposition.

This case serves as an important reminder that offers of compromise must be prepared pursuant to the rules to avoid this sort of harsh outcome for an offeror.