New South Wales
Citation: Foot v Burrett  NSWLC
Hearing Date(s): 11 July 2013
Jurisdiction: Civil – Small Claims Division
Before: Assessor Olischlager
Decision: 1. Costs awarded in favour of the Plaintiff.
Costs allowed in the sum of $88 for filing fees, $37 for service fees and $662.20 for professional costs. Costs payable within 28 days.
Catchwords: Costs, Indemnity principle, third party payer
Legislation Cited: Civil Procedure Act 2005
Local Court Act 2007
Local Court Rules 2009
Legal Profession Act 2004
Legal Profession Regulation 2005
Cases Cited: Oshlack v Richmond River Council (1998) 193
Wentworth v Rogers  66 NSWLR 474 at
Adams v London Improved Motor Coach
Builders Ltd  I KB495
Dyktynski v BHP Titanium Minerals Pty Ltd
 NSWCA 154
New Pinnacle Group Silver Mining Co v Luhrig
Coal & Ore Dressing Appliances Co (1902) 2
SR (NSW) 50; 19 WN (NSW) 9
Shaw v Yarranova Pty Ltd and Anor  VSCA55
New South Wales Civil Procedure
Handbook 2011, Hamilton, Lindsay,
Morahan & Webster, eds, Lawbook Co 2011
Parties: James Foot (Plaintiff) Sara Surrett (Defendant)
Legal Representation: Ms Au (for Plaintiff)
Mr Fernie (as agent for Defendant) File number(s): 2013/0086788
Place of Hearing: Downing Centre Sydney
Publication Restriction: Nil
1 On 11 July 2013 the Court awarded a verdict and judgment in favour of the plaintiff in the sum of $356.00 representing the assessment of damages for loss of use of the plaintiffs vehicle arising from a collision caused by the defendant.
2 At the conclusion of the trial the plaintiff sought costs. The defendant argued that costs should not be allowed on the grounds that the plaintiff was not personally liable to pay the costs of its legal representative and that an award of costs would therefore infringe the indemnity principle. Given that this issue is one that has been raised in a number of earlier claims for Joss of use involving credit hire companies and insurers the Court reserved its decision on costs to allow the parties to make written submissions.
3 By way of background, the plaintiff’s Toyota Camry was damaged in a coJiision on 1 January 2013. The collision was due to the negligence of the defendant. The plaintiff delivered his motor vehicle to his insurer’s assessment centre on 4 February 2013. It was then transferred to Lustre Glo Smash Repairs at Marrickville. The plaintiff was provided the details of Iconic Rentals for the purpose of hiring a replacement vehicle while his vehicle was being repaired. The plaintiff hired a vehicle during the period of 9 February to 14 February through Iconic Rentals. The total cost of the hire was $606.10.
4 The plaintiff has not paid any money to Iconic Rentals for the cost of the hire car. At the time of entering into the rental agreement the plaintiff understood that he would not be required to pay the hire costs and that
the costs would be sought from the defendant or her insurer. The hire of a replacement vehicle through Iconic Rentals provided additional benefits including hire on a credit basis and assistance in recovering car hire charges from the defendant. On 9 February 2013 the plaintiff signed a document under the letterhead of Boston Commercial Services Ply Ltd titled “Authority and Direction”. This document authorised Boston Commercial Services Ply Ltd to act on behalf of the plaintiff “in relation to the recovery of the cost incurred by me of hiring a replacement vehicle”. The document provides as follows:
“I further irrevocably authorise and direct Boston to take any and all recovery action, including commencing legal proceedings on my behalf and naming me as plaintiff in any such proceedings, consistent with all applicable laws, and consistent with Boston’s rights, entitlements and obligations under the Commercial Agents and Private Inquiries Act NSW
I hereby consent to Boston instructing Dejure Commercial Lawyers as my
Solicitor on the record in respect of any proceedings commenced in
relation to this retainer and I hereby retain Dejure on the terms and conditions of Boston’s existing retainer with Dejure.. ..
I authorise and direct Boston to pay all monies collected under this retainer to Iconic Management Pty Ltd tlas Iconic Rentals (Iconic) upon collection, on my behalf I acknowledge that payment by Boston to Iconic will discharge my liability to Iconic in respect of this hire and the Rental Agreement referred to above.
I also acknowledge that Iconic is an associated third party payer for the purposes of the Legal Profession Act 2004 NSW”
5 No retainer or costs agreement engaging the law practice, Dejure Lawyers, who appears on behalf of the plaintiff, has been produced to the Court.
6 It is on the basis of the “Authority and Direction” document and the absence of any retainer document that the defendant submits that the plaintiff is under no liability to pay legal costs for engaging Dejure Lawyers to act on the plaintiffs behalf in commencing these proceedings.
7 The proceedings were heard and determined in the Small Claims Division of the Local Court. The power to award costs is limited. Section 37 of the Local Court Act 2007 provides: “Except as provided by the rules, the Court sitting in its Small Claims Division has no power to award costs.”
8 Rule 2.9(2)(c) of the Local Court Rules 2009 allows the Local Court sitting in its Small Claims Division to make orders for the payment of costs if judgment is given after a trial of proceedings. The maximum costs that may be awarded under subrule (2) is the amount of costs that would be allowable on entry of default judgment in the proceedings. That amount is
fixed under Schedule 2 of the Legal Profession Regulation 2005. As
th se proceedings involve a claim for general damages for an unliquidated amount the maximum costs that may be allowed is $662.20 inclusive of GST.
9 The power to award costs within the limitations contained in Rule 2.9 is a matter of discretion of the Court. Part 42 of the Uniform Civil Procedure Rules 2005 relating to costs is excluded from operating within the Small Claims Division. The Court exercises its discretion in accordance with the general law relating to costs.
10 The starting point on costs is that there is a presumption that costs follow the event. In the present case where the plaintiff has succeeded on the claim then there is a “reasonable expectation” that costs will be awarded against the unsuccessful party; Oshlack v Richmond River Council (1998)
193 CLR72 at  and .
11 The defendant correctly submits that an award of costs seeks to compensate a party for the costs incurred in legal proceedings. The notes to contained in the New South Wales Civil Procedure Handbook 2011, Hamilton, Lindsay, Morahan & Webster, eds, Lawbook Co 2011 at p876 describe the purpose of an award of costs in the following terms:
“The object of a costs order is to compensate the successful party for the expense… in pursuing or defending … court proceedings: Harold (1860) 5
H & 381; 157 ER 1229 at 1231; Hawthorne Cuppiadge & Badgery v
Channell 2 Qd R 488 at 492.
The … costs order operates as an indemnity [or partial indemnity more accurately] in respect of the costs that party is liable to pay his lawyer in respect of the matter which is the subject of the costs order: Masha
Nominees Pty Ltd v Mobil Oil Aust Pty Ltd (No2)  VSC 56 at ; The corollary is that costs claimed in excess of what the party is liable to pay his or her own legal representative cannot be recovered from the other party to the litigation; Cashatt v Woolhara Municipal Council  NSWCA 178 at ; James Hardie & Co v Stevenson  NSWSC 1.”
12 The defendant submits that the plaintiffs legal costs are payable by the Iconic Rentals and in a practical sense the plaintiff is not liable for legal costs. Accordingly, the defendant submits that the court should not award costs as the award would infringe the indemnity principle.
13 While the indemnity principle still applies when considering an award of costs, the approach of the court in a number of decisions demonstrates that it is a rule that is not strictly applied.
14 In Wentworth v Rogers 66 NSWLR 474 at 487 Santow JA expressed the view that the indemnity rule is not immutable and should be applied flexibly rather than rigidly. In that case Mr Rogers had entered
into a conditional costs agreement with his barristers that provided that his obligation to pay did “not arise upon a cost order being made in my favour but on costs being successfully recovered as against Ms Wentworth”. In a circular argument the conditional costs agreement meant that there was
no liability for costs against which Mr Rogers could seek to be indemnified against unless costs were recovered against Ms Wentworth. Under the indemnity principle no costs could be awarded in the absence of an existing liability. Notwithstanding this, the Court of Appeal allowed costs. Santow J held that the indemnity principle should accommodate
conditional costs agreement under the Legal Profession Act stating at :
“…. the Act now recognises conditional costs agreements of the kind where payment of the barrister’s or solicitor’s costs “is contingent on the
successful outcome of the matter” s186. No distinction is drawn between suph a contingency expressed as a condition precedent or subsequent. I am inclined to the view that the application of the indemnity principle should not depend on that distinction either, though that is not necessary to decide. The costs agreement, to comply with the Act must “set out the circumstances constituting the successful outcome of the matter”. I consider that the indemnity principle must at least accommodate the kind of conditional costs agreement recognised by s186. Otherwise, it will operate as a powerful disincentive from using the now statutorily
recognised conditional costs agreement, facilitating access to justice, if the lawyer concerned will not recover costs from the other party where successful against that other party”.
15 Basten JA held that where payment is to be made on a contingency basis, there is an immediate and quantifiable obligation imposed on the client when the retainer is created, the contingency operating as a condition subsequent.
16 There are numerous examples where costs have been allowed notwithstanding that the client appears not to have a primary liability to pay legal costs.
17 In Adams v London Improved Motor Coach Builders Ltd  I KB495 costs were allowed notwithstanding that the litigant was indemnified against payment of legal costs by a trade union. Bankes LJ at 501 stated:
“When once it is established that the solicitors were acting for the plaintiff with his knowledge and assent…. he became liable to the solicitors for costs, and that liability would not be excluded merely because the Union a/so undertook to pay the costs. It is necessary to go a step further and prove that there was a bargain, either between the Union and the
solicitors, or between the plaintiff and the solicitors, that under no cit;cumstances was the plaintiff to be liable for costs.”
18 More recently in Oyktynski v BHP Titanium Minerals Pty Ltd  NSWCA 154 the Court of Appeal allowed costs on appeal proceedings even though the appellant was not under a liability to pay costs to his solicitors. Mason P at  endorsed the principles referred to in Adams v London Improved Motor Coach Builders Ltd:
“If a party to an action has agreed with the solicitor that a party does not have to pay any costs, then costs cannot be recovered against the adversary under a party/party order… alternatively, if the solicitor/client agreement caps the amount of costs recoverable, this enures to the benefit ofthe client’s adversary (Tarry v Price [No2] (1987) BBFLR 270). The situation is different if the client has the benefit of an indemnity from a
third party, so long as the client remains under a /ega/liability to the
solicitor (Adams v London Improved Motor Coach Builders Ltd (1921) 1
KB 495: Backhouse v Judd (1925) SASR 395; Angor Pty Ltd v flich Motor Co Ply Ltd (1992) 37 FCR 65; Wilson v Richmond River Shire Council (2000) NSWSC 71.”
19 In Oyktynski the Court of Appeal allowed costs even though the appellant had no liability to pay legal costs. The Court of Appeal applied the exception to the indemnity principle referred to in New Pinnacle Group Silver Mining Co v Luhrig Coal & Ore Dressing Appliances Co (1902) 2 SR (NSW) 50; 19 WN (NSW) 9 where the Court held that costs could be recovered notwithstanding that the party named in the proceedings was a “nominal plaintiff’. The indemnity principle should operate on the
substance rather than the form in identifying the real parties to proceedings.
20 In order for the Court to decline to award of costs on the basis of the inQ!emnity principle it is necessary for the court to be satisfied that the plaintiff is under no liability to pay for legal costs. Liability for legal costs may arise either by reason of a cost agreement or alternatively, according to “the fair and reasonable value of the legal service provided” (see
section 319(1) of the Legal Profession Act 2004).
21 The evidence before the Court fails to establish that there is no liability on the part of the plaintiff for legal costs.
22 With respect to the existence of a retainer the burden rests upon the defendant who challenges its existence. In Shaw v Yarranova Pty Ltd and Anor  VSCA55 Redlich JA and Mandie JA said at ;
“Courts generally accept the existence of a contract of retainer when a solicitor has performed work on behalf of a person with his or her knowledge and assent, in circumstances which are consistent with that person being the solicitor’s client. The existence of a contract of retainer and the liability of the client for the solicitor’s costs will be presumed, and the party who challenges the existence of the retainer in such circumstances bears the onus of establishing the proof of it.”
23 The defendant has failed to produce evidence that would displace this presumption. The mere fact that Iconic is identified as an associated third party payer does not give rise to an inference that the plaintiff has not retained Dejure Commercial Lawyers.
24 The evidence available to the Court is supportive of the existence of a retainer. The conduct of Mr Foot in providing a statement to the Court and referring to information show to him by his solicitors is conduct that is consistent with the existence of a retainer. Mr Foot also signs an authority
giving consent to Boston to act as his agent in instructing Dejure Cemmercial Lawyers. As a matter of agency law Dejure Commercial Lawyers would be entitled to seek payment of their costs directly from the plaintiff. Even if the Court were to assume that there was no written costs agreement between Mr Foot and Dejure Commercial Lawyers it would be open for Dejure Commercial Lawyers to seek payment on a quantum meruit basis from Mr Foot given his knowledge and acceptance of the benefit provided by the lawyers acting on his behalf.
25 Accordingly, the Court is satisfied that the indemnity principle is not infringed. Mr Foot is entitled to an award of costs. The Court will allow costs on the issue fee and service fee of the claim in the sum of $125.00 together with legal costs at the scale rate applicable to default judgment on unliquidated claims being the sum of $662.20. Those costs payable within 28 days.