Facts

Consideration of the appropriate costs orders arose following a complex contractual dispute litigated in the Supreme Court of Western Australia. The plaintiff alleged breach of contract leading to an entitlement to damages in one of four bases. The entitlement varied very significantly depending on which factual scenario was accepted by the court. At most, the Plaintiff claimed damages of $5,696,585, and at the least, $45,641. The Defendant disputed liability and quantum.

The case involved a major aspect of the Plaintiff’s business, with the Defendant having the exclusive right to provide products and services that included or used the Plaintiff’s products. Each party briefed a financial expert and each served three reports. The Trial Bundle comprised over 70,000 pages, and 36 live issues were identified for trial.

Ultimately, the parties achieved resolution on the basis of one of the intermediate scenarios, with the Defendant agreeing to payment of $164,360; in addition, the Defendant agreed to pay all of the Plaintiff’s legal costs, such costs to be taxed.

The Plaintiff applied for a special costs order under Section 280(2) of the Legal Profession Act 2008 (WA) (the Act), in effect waiving the limits imposed by the costs determinations and substantially increasing the costs recovery.

The Defendant opposed the application on the bases that:

1. the settlement agreement included an agreement as to costs, which excluded the right to apply to remove or increase the limits under the costs determinations; and in any event
2. the Plaintiff had failed to show the allowances under the costs determinations were inadequate; and
3. the Court should not exercise its discretion to make a special costs order because the assessed costs would then be disproportionate to the settlement sum.

Relevant legislation

Section 280 of the Act relevantly provides:

(1) Subject to any costs agreement made in accordance with Division 6 or the corresponding provision of a corresponding law, section 306 and the Legal Aid Commission Act 1976 section 14 —

(a) the taxation of bills of law practices; and

(b) any other aspect of the costs charged by law practices,

is regulated by an applicable costs determination.

(2) Despite subsection (1), if a court or judicial officer is of the opinion that the amount of costs allowable in respect of a matter under a costs determination is inadequate because of the unusual difficulty, complexity or importance of the matter, the court or officer may do all or any of the following –

(a) order the payment of costs above those fixed by the determination;

(b) fix higher limits of costs than those fixed in the determination;

(c) remove limits on costs fixed in the determination;

(d) make any order or give any direction for the purposes of enabling costs above those in the determination to be ordered or assessed.

Decision

The settlement agreement

The Defendant submitted that the terms of the settlement agreement were such as to preclude the Plaintiff from making any application under s280 to remove the limits in the costs determinations.

Le Miere J noted that the wording of the agreement was that the Defendant agreed to pay all of the Plaintiff’s legal costs, such costs to be taxed. His Honour considered that the ordinary and natural meaning of this wording did not exclude the Plaintiff’s right to apply for a special costs order, but rather only identified the mechanism by which the entitlement was to be assessed. His Honour held:

The words ‘such costs to be taxed’ refer to the process by which costs are quantified. They do not refer to the basis on which the taxing officer is to assess those costs.

Thus, His Honour held that the terms of the agreement between the parties did not preclude the Plaintiff from making the application under s280.

Inadequacy of the costs determination

In order to exercise the discretion to assess costs beyond the limitations imposed by a costs determination it is necessary for the costs applicant to establish that:

…the amount of costs allowable in respect of a matter under a costs determination is inadequate because of the unusual difficulty, complexity or importance of the matter.

Le Miere J accepted the Plaintiff’s submission that the context and factual circumstances of the case were sufficiently complicated and very significant to the Plaintiff’s business satisfied that test.

His Honour concluded that, subject to consideration of the Defendant’s ‘proportionality argument’, the amount of costs allowable under the costs determination was inadequate in light of the complexity and importance of the matter.

Proportionality

The Plaintiff’s draft bill of costs was more than five times the primary settlement sum, but less than the maximum claim particularised in the first scenario. The Defendant argued that the quantum of the costs was so disproportionate to the ‘entitlement to damages’ (as reflected in the settlement) that it was inappropriate for the Court to exercise its discretion to permit recovery of unrestricted costs in circumstances where the costs recoverable via the costs determination were proportionate to the Plaintiff’s recovery, and where there was a ‘hot dispute’ between the parties as to the quantum of any damages if the Plaintiff succeeded in establishing liability.

His Honour accepted that while proportionality is relevant to the making of a special costs order, it should not be assessed retrospectively or merely by reference to the ultimate amount recovered (though this is a factor to take into consideration). If the costs were not unreasonably incurred and not unreasonable in amount in the circumstances of the proceedings under consideration, an assertion of disproportionality does not justify refusing a special costs order. His Honour observed:

The rules do not, in terms, require or authorise the court to limit the recovery of costs reasonably incurred by a party, so as to ensure proportionality between the amount of the costs that have been incurred and the value of the subject matter in dispute. That is not to say that proportionality is not relevant.

Le Miere J found that the nature of the Plaintiff’s claims and the defences raised by the Defendant reasonably required an amount of preparation by the Plaintiff that was likely to exceed the limits in the costs determination.

The Plaintiff’s application was granted.

Implications of decision

In the writer’s experience, plaintiffs have increasingly made applications for special costs orders, and, at least in the Supreme Court, trial judges have been sympathetically disposed to making special costs orders in appropriate cases.

This case serves to highlight the need for parties to give close consideration to the potential costs implications when making or accepting settlement offers.