News — Special Costs Orders in light of Agreed Terms of Settlement

On 9 November 2018, his Honour Justice Le Miere delivered a decision relating to the interaction between special costs orders and parties agreed terms of settlement.

 

Written by Amy Pascoe LLB (Hons) – April 2019

 

In this case, the Plaintiff and the Defendant made an agreement compromising the Plaintiff’s claims against the Defendant. One of the terms of the agreement was that the Defendant was to pay all of the Plaintiff’s legal costs, such costs to be taxed.   

After settlement had been effected, the Plaintiff then applied for special costs orders under section 280(2) of the Legal Profession Act 2008 (WA) seeking to lift the Scale limits. The Defendant opposed the application on the grounds inter alia that:

  1. the settlement agreement excluded the right of the Plaintiff to apply for a special costs order; and
  2. the amount of costs which the Plaintiff seeks to recover pursuant to a special costs order was disproportionate to the settlement sum.

In relation to whether the Plaintiff was excluded from exercising its right to apply to for a special costs order, His Honour’s decision ultimately turned on the construction of the settlement agreement. In particular, his Honour applied an objective approach in determining the rights and liabilities of the parties to the contract, therefore, in a commercial contract, what a reasonable businessperson would have understood those terms to mean.

Accordingly, the wording ‘such costs to be taxed’ referred to the process by which the costs are quantified and not the basis on which the taxing officer were to assess the costs. There was also nothing within the agreed term that excluded the Plaintiff’s right to apply for special costs and therefore, the Plaintiff was found not to be excluded from making the application.

In relation to the proportionality argument, his Honour found that proportionality should not be judged retrospectively or simply by reference to the total amount recovered, but rather the Court must have regard to the facts and circumstances as they reasonably appeared to the plaintiff and its solicitor at the time when the costs were incurred. Therefore, hindsight is not a determinative in the issue of proportionality and the disproportionality between the settlement sum and the Plaintiff’s claimed costs is not a reason for refusing to make a special costs order, if those costs were not unreasonably incurred and not of an unreasonable amount.

In light of the above, Practitioners should always ensure the wording of the agreement terms for costs orders are concise and accurate. Therefore, it is not enough to refer to simply costs being taxed and expect the Scale limit to apply. If an intention of the paying party is to exclude the receiving party from making an application for special costs orders, then the terms should include a direct reference to the exclusion.