Party-party, solicitor-client, indemnity, special indemnity, scale costs: where are we at?

It seems that Mukhtar AsJ found Bougainville Copper Ltd v RTG Mining Inc [2021] VSC 231 fascinating and rewarding.  It was an application for preliminary discovery to find out whether the applicant had a cause of action for damages for bribery and corruption by the respondent.  The respondent had a ‘resounding victory’; the applicant got no discovery at all, unable to establish the threshold suspicion to warrant such an order.

His Honour dismissed the respondent’s application for indemnity costs nevertheless in reasons published as [2021] VSC 348.  The indemnity costs application was based in part on allegedly unfounded allegations of wrongdoing insinuated by the applicant.  But it is one thing to make unfounded allegations in a case proper and another to insinuate them for the purposes of establishing whether there is such a case in a preliminary discovery application which is inherently fishing.

It is a beautifully written set of reasons, but I draw your attention to the costs judgment principally because it sets out crisply in one place the differences between the old party party costs and the new standard basis costs, and the old solicitor-client and indemnity costs and the new indemnity costs.  If you are after authority that the new standard basis is akin to the old solicitor-client basis, this is it (though the theory will not necessarily be reflected in Costs Court practice).

And the judgment re-iterates that which is much mis-understood, namely that when you get common garden variety indemnity costs, they are still calculated by reference to Scale, not by reference to what the winner was actually billed.  It is a while since this little newsletter has made that point.

One other mis-understood bit of the law of costs, to complete the picture, is the difference between taxation as between solicitor and own client and taxation as between parties on the solicitor-client basis, two different but dangerously similarly named enquiries.   The new taxonomy of costs as between party and party should reduce confusion since there will be no taxations on the solicitor-client basis as between parties.  But it is as well to remember that even where costs have been taxed as between party and party on Scale, and the winner’s solicitor was charging the winner on the same Scale, the results of the two enquiries will not necessarily be the same.  Indeed, the same may be said, even where the costs have been taxed as between party and party on the indemnity basis.  Because as between party and party, the question is what is reasonable as between the parties, whereas as between solicitor and own client, the question is what is reasonable between the solicitor and the solicitor’s own client, a test which is generally more generous to the solicitor.

The bits of Mukhtar AsJ’s reasons which I think will be of general interest to those who do not already have this stuff front of mind are as follows:

‘4  This Court’s procedural rules state that costs shall be taxed on the standard basis unless the Court otherwise orders.2 It is describable as the usual order. The other bases on which costs may be taxed are on ‘the indemnity basis’ or ‘such other basis as the Court may direct’.3 Those are describable as special or exceptional costs orders. I shall return to the differences later.

5  There is no special rule in order 32 concerning costs in a case of a refused application, as there is for an application that is granted.4 But, it is elementary that the determination of by whom and to what extent costs are to be paid is in the discretion of the Court.5 Such a discretion is expected to be judicially exercised to do justice between the parties. In the adversarial model, the natural expectation is that, absent disentitling conduct of the ‘winning party’, the ‘losing’ party should compensate the other party for the legal costs incurred in bringing or opposing the legal action in the way or to an extent prescribed by the procedural rules. That coheres with an underlying public interest of instilling the need to give careful consideration before commencing legal proceedings. It finds expression elsewhere as an overarching obligation on a person under the Civil Procedure Act 2010 to not make any claim in a civil proceeding that does not, on the factual and legal material available to the person at the time of making the claim, have a proper basis.6

6  As the winning party, the respondents seek an order that BCL pay their costs on ‘the indemnity basis’. …

2. See rule 63.31.
3. See rule 63.28.
4. See rule 32.11 which concerns a respondents’ costs and expenses of carrying out a discovery order, about which see Guest v Guest (No.2) [2016] VSC 76.
5. Section 24 of the Supreme Court Act 1986.
6. See s 18.

15 Thus, the issue calling for a costs determination is whether BCL should be ordered to pay ‘costs on the standard basis’ or ‘costs on the indemnity basis’ as that phraseology is used in the rules.11 To see what is at stake here, something should be said about the difference between the two. The two bases of costs were introduced into this Court’s procedural rules in April 2013, and are better understood by the very well-known costs measures that preceded them.

16 Any costs order is a form of ‘indemnity’. Under the previous base measure of taxation known as ‘party/party’ and under the more generous ‘solicitor/client’ basis of taxation, there could never be a complete indemnity because there would be costs which could not be reasonably charged to the other (losing) party even though such costs may have been incurred by the successful party. The usual example is the cost of ‘luxuries’ such as two counsel, or a team of solicitors on the case to enable the litigation to be conducted more conveniently.12 A complete indemnity for costs − and by that I mean a costs order to the last cent according to the costs incurred by the winning party according a pre-existing private costs agreement with its solicitor − could only be obtained on a specific order to that effect. I believe those to be a rarity.

17 All that has been replaced by the current rules. Rule 63.30 states that ‘on a taxation on the standard basis, all costs reasonably incurred and a reasonable amount shall be allowed’. As I understand it, reasonable in that context does not mean what is reasonable to charge the client, but costs for which it is reasonable to charge the other side. Costs on the standard basis are said to more generous than the former ‘party/party’ basis and more likely to equate with the previous solicitor/client costs basis of taxation because a receiving party is not confined to costs on a strict test of what was only necessary or proper, but could be allowed all costs on a test of costs which may not have been strictly necessary but nevertheless were reasonable and were for a reasonable amount.13

11. See rule 63.28
12. See commentary in Williams, Civil Procedure, Vol 1, [63.02.160] to [63.02.190].
13. Ibid [63.02.175 and 63.02.190]

18  As for ‘costs on the indemnity basis’ rule 63.30.1 states:

(1)  Subject to paragraph (2), on a taxation on the indemnity basis all costs shall be allowed except insofar as they are of an unreasonable amount or have been unreasonably incurred.

(2)  Any doubt which the Costs Court may have as to whether the costs were unreasonably incurred or were unreasonable in amount shall be resolved in favour of the party to whom the costs are payable.

19  The difference between this rule and the standard costs rule is not crystalline clear. It is thought the distinction lies in who bears the onus of proof on a question of reasonableness.14 That is, in the case of indemnity costs, the onus is on the paying party to demonstrate that the receiving party’s costs were unreasonably incurred or were unreasonable in amount.15

20  But more importantly, and to add another qualification, despite the distinction between standard costs and indemnity costs, the costs allowed on either basis are assessed on the same Supreme Court Scale of Costs in Appendix A of the rules (‘the Scale’), with a power to increase on taxation. Rule63.34 states (with my underlining):

(1)  Subject to paragraph (3), a legal practitioner for a party to whom costs are payable (whether the basis of taxation is the standard basis or the indemnity basis) shall be entitled to charge and be allowed costs in accordance with the scale in Appendix A unless the Court or the Costs Court otherwise orders.

(2)  Witnesses’ expenses and interpreters’ allowances shall be fixed in accordance with the scale in Appendix B.

(3)  The Court may, on special grounds arising out of the nature and importance or the difficulty or urgency of the case, allow an increase not exceeding thirty percent of the legal practitioner’s charges allowed on the taxation of costs with respect to-

(a)  the proceeding generally; or

(b)  to any application, step or other matter in the proceeding.

(4) Where the Court so directs, the Costs Court shall have the same authority as the Court under (3) to allow an increase in the fees set forth in Appendix A.

14. Ibid [63.02.174].
15. Ibid [63.02.180].

21  There are additional powers to increase an allowance for costs on the Scale. Item 17 of the Scale allows an additional amount to be allowed having regard to the levels of skill, care and responsibility involved in the case. Outside the Scale, and more broadly, rule 63.72 states that ‘In any particular taxation of costs, the Costs Court may increase or decrease the amount or value of any allowance or expense inAppendix A or Appendix B as the Costs Court thinks fit’.

22  There are three points to be taken from this overview. First, taxation of costs on the standard basis ought not be regarded as a minimalist or an economising ‘entry level’ measure. It is more generous than that. It appears to equate with the previous solicitor/client basis of taxation. Secondly, whatever the basis of taxation, the costs still fall to be taxed according to the Scale, with a power in the Costs Court to increase amounts allowed under the Scale. Thirdly, taxation on the indemnity basis does not mean the client will be indemnified from being out of pocket.’

See also:

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