Can pre-proceedings costs be allowed on taxation?
Presented with a lengthy Bill of Costs, the unsuccessful party to a civil proceeding usually feels pretty unhappy about having to pay a chunk of their opponent’s legal expenses. This leads to the unsuccessful party objecting to some (if not many) of the items claimed. These are commonly costs incurred before the proceeding started, settlement negotiation costs, the costs of various solicitor’s attendances, and counsel’s fees. In this instalment of ‘Bite Sized Legal Insights’ we will look at when (and why) pre-proceeding costs can be allowed in a taxation of party-party costs.
What is are the general rules about the quantification of party-party costs?
Where costs are taxed on the standard basis, the successful party bears the onus of proof, and all items that were reasonably incurred and of reasonable amount will be allowed (see Supreme Court (General Civil Procedure) Rules 2015 (Vic), r63.30).
Where costs are taxed on the indemnity basis, the unsuccessful party nears the onus of proof, and all items will be allowed unless the Court is satisfied they were unreasonably incurred or unreasonable in amount (r63.30.1(1)). If there is any doubt, there is a presumption in favour of the successful party (r63.30.1(2)).
But what does that mean for costs incurred before the proceeding started?
The starting point is the Court rules identified above. Therefore, the short (and annoying) answer is that pre-proceedings costs can be allowed if they were reasonably incurred and of reasonable amount.
The long (and also annoying) answer is that it depends, there’s no universal rule, but there are a few authorities that provide some guidance.
Trustees Executors and Agency Co Ltd v Sargood [1905] VLR 84 (‘Sargood’)
Sargood is an early Australian case example of pre-proceedings costs being allowed. At 88-89 Hodges J held that costs incurred in anticipation of threatened litigation should be allowed. Sargood illustrates that Australian Courts hold the discretion to order an unsuccessful party to pay some of their opponent’s pre-proceedings costs.
Frankenburg v Famous Lasky Film Service Ltd [1931] 1 Ch 428 (‘Famous Lasky’)
Famous Lasky shines a light (pun intended) on the circumstances in which pre-proceedings costs will be allowed. In Famous Lasky, the plaintiff learnt the defendants were going to demolish their premises, and thereby destroy some really nice ancient lamps on his property. Before bringing proceedings, he sought a solicitor’s advice and arranged the preparation of plans of the defendant’s property.
The plaintiff then applied for an injunction restraining the defendants from interfering with the ancient lamps. The plaintiff and defendant compromised the litigation before it reached trial, and the settlement included a term the defendant would pay the plaintiff’s costs.
At first instance, the plaintiff’s costs of seeking advice and arranging the plans were allowed on taxation. That decision was reversed on appeal. Then the Court of Appeal (UK) upheld the decision at first instance:
🔄Lord Hanworth MR held that ‘materials ultimately proving of use and service in the action’ were within the Court’s discretion to allow, and this extended to all materials necessary ‘proper for the attainment of justice in that case’. He held the pre-proceeding costs were allowable because they were relevant to the matters in dispute in the proceeding and were fairly attributable to the conduct of the defendants.
🔄Lawrence LJ also declined to fetter the taxing master’s discretion concerning pre-proceedings costs with a hard and fast rule that the only costs that could be allowed were those incurred obtaining evidence for the action, as opposed to advice. He agreed with Lord Hanworth that the costs incurred by the plaintiff before the proceeding were properly characterised as costs ‘of obtaining such materials as would have been of use and service at the trial’ (had it proceeded).
Re Gibson’s Settlement Trusts [1981] Ch 179 (‘Gibson’s Settlement Trusts’)
In Gibson’s Settlement Trusts, Sir Robert Megarry VC attempted to clarify the dividing line between pre-proceedings costs that will be allowed, and those that will not. Megarry VC observed that where the ‘dispute ripens to litigation, the question then arises how far the ambit of the costs is affected by the shape that the litigation takes’. In other words, the issues in dispute might expand and contract between the time the dispute first arises, when the pleadings are filed, and the trial. Megarry VC identified:
‘...three strands of reasoning, that of proving of use and service in the action, that of relevance to an issue, and that of attributability to the defendants' conduct’.
Let's break those down:
(1) Use and service in the cause of action – even if the immediate purpose of obtaining evidentiary material or advice is to decide whether to bring proceedings, the Court has the discretion to allow those Costs if they were useful to the plaintiff at trial.
(2) Relevance to an issue – the material must have a degree of relevance to the subject of the litigation to be regarded a cost of the proceeding .
(3) Attributability to the defendant – if the other party’s conduct made it reasonable to apprehend the litigation ultimately constituted would include an antecedent dispute, the Court may find the costs incurred in relation to that dispute were reasonably incurred.
In the particular case, the Court held that the taxing master’s decision to allow (over objection) costs incurred before the date of the summons was correct, because the plaintiff’s summons was framed widely, and the work conducted before the summons was filed fell within the ambit of the proceeding that actually eventuated.
Takeaways
If pre-proceedings costs are incurred on material that is useful or relevant to the issues ultimately in dispute in the proceeding, or the opponent’s conduct made it reasonable to expect those issues would be in dispute, it is likely that those costs will be allowed (subject to the specific rules of the Court, and fairness and reasonableness).