Recovery Costs & Costs Assessment in Settlement Agreements: Object or Beware

The Ramsden Litigation team discusses the perils of recovery costs and costs assessment in settlement agreements within the required time.

BACKGROUND

The Queensland Court of Appeal’s recent decision in Ultra Tune Australia Pty Ltd v Mackenzie Auto Repairs Pty Ltd (‘Ultra v Mackenzie’) demonstrates the importance for parties to take special care when preparing offers to settle and notices of objection in response to costs statements.  The Uniform Civil Procedure Rules (‘UCPR’) encourages parties to facilitate the just and expeditious resolution of disputes, such as by reaching a settlement. If a party makes an offer to settle that is not accepted by the other side, and the other side obtains an outcome at trial that is less favourable than the offer, the court may order that the other side pay the offeror’s costs of the proceeding (despite being successful).

In Ultra v Mackenzie, the Court considered:

1. the effect of delay and increased costs during the costs assessment process, where a fixed costs agreement could have avoided this; and
2. Ultra’s failure to serve a notice of objection in response to Mackenzie’s costs statement within the required timeframe (i.e. 21 days after service of the costs statement) under rule 706 of the UCPR.

From 2007 to 2017, Mackenzie was one of Ultra’s franchisees. In 2017, Mackenzie commenced proceedings against Ultra alleging they had breached the franchise agreement, provisions of the Franchising Code of Conduct and the Australian Consumer Law. The matter was settled under a deed of settlement, where Ultra agreed to pay Mackenzie’s costs on the indemnity basis including costs of the proceedings, the assessment of costs, preparation of the deed of settlement and the costs of enforcing the deed of settlement.

ENFORCING THE DEED OF SETTLEMENT

Following Ultra’s failure to pay the settlement sum and costs, Mackenzie applied to the Supreme Court of Queensland to enforce the settlement deed by obtaining judgment.  Judgment was given in favour of Mackenzie and Ultra were ordered to pay Mackenzie’s costs of the proceeding as well as the application on an indemnity basis.  Mackenzie later served a costs statement on Ultra. Under rule 709 of the UCPR, Ultra had 21 days to serve a notice of objection to the costs claimed by Mackenzie.

ULTRA’S FAILURE TO SERVE AN OBJECTION TO COSTS

Ultra failed to serve any notice of objection to Mackenzie’s costs statement within 21 days, following which Mackenzie filed an application to appoint a costs assessor (under rule 708 of the UCPR) to conduct a default assessment of Mackenzie’s costs (where the assessor is generally permitted to allow all costs claimed within the costs statement, save for obvious errors). The assessor assessed Mackenzie’s costs in the amount of $260,203.23.

ULTRA’S APPLICATION TO SET ASIDE THE COSTS ASSESSMENT

Ultra brought an application under rule 709 of the UCPR seeking that the costs assessment be set aside. The application failed on the basis that Ultra’s representatives had made a number of concessions in respect of the substantive issues identified in the costs statement and the notice of objection, while making a number of ‘agreeable’ exchanges with Her Honour and Counsel appearing on behalf of Mackenzie, agreeing that the order be signed and the application dismissed.

ULTRA’S APPEAL TO SET ASIDE THE COSTS ASSESSMENT

Ultra appealed the decision on the basis that (among other things):

• they had suffered a substantial injustice by being required to pay an amount for costs which did not consider the items objected to in the Notice of Objection; and
• Her Honour’s failure to give sufficient regard to the evidence explaining the delay in filing the rule 709 application and notice of objection.

The Court dismissed the appeal on the basis that Ultra failed to give sufficient evidence for delay and their failure to acknowledge their obligations under the UCPR was not a reasonable reason for delay, even where the costs statement was 180 pages including 1,602 items.

KEY TAKEAWAYS FOR LITIGANTS

• Litigants must understand each party’s obligations under the UCPR when making and accepting settlement offers;
• No matter the size of a costs statement, litigants must serve any objection to costs within 21 days of receiving the costs statement; and
• There is benefit in parties seeking fixed or lump sum costs orders (as opposed to proceeding to assessment), noting (among other things) the additional costs, delay and disputes that can arise from assessment.

KEY TAKEAWAYS FOR BUSINESSES

Ultra Tune operates over 270 centres and is the second largest motor vehicle repair and maintenance provider in Australia.  In 2019, Ultra Tune were imposed penalties of up to $2 million for multiple breaches the Franchising Code and Australian Consumer Law, which was relevant to this case. It is vital that your business fully complies with all laws and regulations to (among other things) avoid receiving fines or penalties. To ensure your business is abiding by relevant laws and regulations, reach out to Ramsden Lawyers’ commercial team, who would be happy to assist.

OUR ROLE IN LITIGATION

Ramsden Lawyers’ litigation team are able to assist you to ensure that you are following all your relevant obligations under the Court Rules (eg the UCPR).  We would be happy to arrange an initial consultation to assist you in navigating the procedures set out under the relevant legislation for your specific circumstances.