The Civil Procedure Act’s overarching obligation to keep costs proportionate

The Civil Procedure Act 2010 applies to proceedings in the Magistrates’ Court, County Court, and Supreme Court but not federal courts or VCAT. Its overarching purpose is to

‘facilitate the just, efficient, timely and costs effective resolution of the real issues in dispute’: s. 7.

Courts are required to interpret their inherent, rule-based, and statutory powers so as to give effect to the overarching purpose: s. 8.

Every order or direction of a court must further the overarching purpose by having regard to factors which include the degree of compliance with the overarching obligations: s. 9, esp. sub-s. (2)(c).

Further, a court may take any contravention of an overarching obligation into account when exercising ‘any power’ expressly including the costs power: s. 28.

Individual lawyers within law practices, law practices themselves, litigants, insurers, funders, etc to whom the overarching obligations apply:

‘must use reasonable endeavours to ensure that legal costs and other costs incurred in connection with the civil proceeding are reasonable and proportionate to the complexity or importance of the issues in dispute and the amount in dispute’: s. 24.

This costs proportionality overarching obligation prevails over any other legal obligation: s. 12, including lawyers’ duty to act in accordance with their instructions: s. 13.

Lawyers must not cause their client to contravene an overarching obligation: s. 14.

Let me provide an example of the operation of the principle in action. A family lawyer sued his poor African migrant client for fees, having greatly exceeded his estimate. The suit for fees was stayed because the costs disclosure defaults meant that it had been illegally commenced. The family lawyer sought taxation of his own fees in the Costs Court. A costs lawyer acted for the African migrant in the taxation, more or less pro bono, agreeing to accept only scale costs and only to the extent the client was entitled to them from the family lawyer under an order or compromise. The disputed fees were small in the scheme of things, but significant in the context of the migrant’s financial situation. The family lawyer’s bill was slashed in the taxation. The African migrant claimed, on scale, costs of the bitterly contested, labyrinthine and procedurally complex taxation of more than $100,000, several times the value of the reduction in the bill which was much less than $100,000 to start with. A Costs Registrar fixed the African migrant’s costs in the sum of only about $30,000 by virtue of a s. 24 breach, giving a few lines of reasoning. That was less than an offer of compromise in relation to the costs of the taxation by the family lawyer which had been confidently rejected by the client on the costs consultant’s advice, with disastrous consequences for the costs lawyer, leaving the client with a very modest costs entitlement.

The leading authority on proportionality is Yara Australia Pty Ltd v Oswal (2013) 41 VR 302 the facts and outcome of which are useful if you are resisting an allegation of disproportionality despite the stern comments made along the way. Though the appeal book was declared over the top, the Court found no breach in the applicants briefing seven counsel, three of them silks, even though all the applicants’ submissions were much the same, the hearing was an interlocutory application for security for costs, and one applicant briefed two senior counsel and one junior counsel. The Court found the proceeding was likely to be ‘immensely complex and expensive’. The decision makes clear that sanctions under the Act have a disciplinary function when applied to lawyers rather than a purely compensatory purpose: Yara at [5], [20] – [24].

See also the paper of Judicial Registrars Sharon Burchill and My Anh Tran given to the Leo Cussen Institute Litigation Conference 2016 which summarises Babcock & Brown DIF III Global Co-investment Fund LP v Babcock & Brown International Pty Ltd [2015] VSC 612; Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Ltd (2013) 250 CLR 303, Gibb v Gibb [2015] VSC 35; Rigby v Tiernan [2016] VSC 352 esp at [129] et seq (retention of senior counsel with junior disproportionate) and Re Manlio (No 2) [2016] VSC 130 esp at [18].

But if you only read one case, read Actrol Parts Pty Ltd v Coppi (No 3) [2015] VSC 758 where Justice Bell deprived the successful former employer plaintiff of judgment and nominal damages expressly on the basis that its costs of obtaining a relatively Pyrrhic victory against a much weaker former employee defendant were disproportionate, and dismissed the successful plaintiff’s proceedings instead. By virtue of the dismissal, his Honour found, the defendant was the ‘successful party’ for the purposes of the presumption that costs follow the event, and ordered it to pay the defendant’s costs ([103]) on an indemnity basis from the commencement of the proceedings in order to ‘sanction’ the plaintiff’s conduct ([112]). Justice Bell added at [118], for good measure:

‘Let it be understood that the court is prepared to exercise its enhanced and new powers in relation to civil proceedings in quite fundamental ways when this is called for, especially where the overarching obligation to ensure costs are reasonable and proportionate is contravened.’

See also:

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