Badge v Smithdene Pty Ltd
[2021] FCCA 1195
•31 May 2021
FEDERAL CIRCUIT COURT OF AUSTRALIA
Badge v Smithdene Pty Ltd [2021] FCCA 1195
File number(s): MLG 2343 of 2016 Judgment of: JUDGE RIETHMULLER Date of judgment: 31 May 2021 Catchwords: BANKRUPTCY – costs application – allowed Legislation: Bankruptcy Act 1966 (Cth) ss 81, 120, 139D, 139E
Federal Circuit Court Rules 2001
Federal Circuit Court (Bankruptcy) Rules 2016, r. 13.01
Federal Court Rules 2011, rr. 25.03, 25.12, 40
Cases cited: Beach Petroleum NL v Johnson (No 2) (1995) 57 FCR 119
Bitek Pty Ltd v IConnect Pty Ltd [2012] FCA 506 at [18]; 290 ALR 288
Blairgowrie Trading Ltd v Allco Finance Group Ltd (Receivers & Managers Appointed) (In Liq) (No 3) [2017] FCA 330
Foley v Gay [2016] FCA 273
Law Society of New South Wales v Foreman’s (No 2) [2994] NSWCA 69; (1994) 34 NSW LR 408
LFDB V Ms S M (No 2) [2018] FCA 2062
Seven Network Ltd v News Ltd [2007] FCA 2059
Specsavers Pty Ltd v The Optical Superstore Pty Ltd (No 4) [2012] FCA 652,
Number of paragraphs: 53 Date of last submissions: 23 November 2020 Date of hearing: 23 November 2020 Place: Melbourne (via Microsoft Teams)
Table of Corrections 3 June 2021 In cover page appearances ‘Mr Morris’ added as Counsel for the Applicant. 3 June 2021 In Order 1 the letter‘s’ added to the word ‘Respondent’ to read as ‘Respondents’. 3 June 2021 ‘Judge’ added to cover page for ‘Judgment of’ to read as ‘Judge Riethmuller’ 3 June 2021 ‘Judge’ added to orders page to read as ‘Order made by Judge Riethmuller’.
Solicitor for the Applicant: Hutchinson Legal Counsel for the Applicant: Mr Bigmore and Mr Morris Solicitor for the Respondents: Thomas Egan & Associates Counsel for the Respondents: Mr Moon ORDERS
MLG 2343 of 2016 IN THE MATTER OF MICHAEL DAVID BADGE
BETWEEN: MICHAEL DAVID BADGE
Applicant
AND: SMITHDENE PTY LTD
First Respondent
AND: JOAN WENDY MEURS
Second Respondent
ORDER MADE BY:
JUDGE RIETHMULLER
DATE OF ORDER:
31 May 2021
THE COURT ORDERS THAT:
1.The Respondents pay the Applicant’s costs fixed in the sum of $251,972.32.
REASONS FOR JUDGMENT
JUDGE RIETHMULLER:
BACKGROUND
The applicant in this matter seeks costs, following the settlement of proceedings, to recover assets from the respondents. The proceedings were settled between the parties in April 2020 for the sum of $100,000.00, following the acceptance of a formal offer made by the respondents.
Procedural history
The proceedings have had a long and complex procedural history, far greater than most cases in this jurisdiction. Following commencement of proceedings, the respondents filed a defence and requested further and better particulars of the Statement of Claim in December 2016. A number of interlocutory events were undertaken leading up to a Mediation before a Registrar of the Court in August 2017.
Following the mediation, the applicant was ordered to file and serve Affidavit material by November 2017. In September 2017, the applicant served an Amended Statement of Claim. The matter was listed for hearing in mid-2018.
In early 2018, an ex parte application was brought before Judge Wilson for orders freezing assets to the value of $950,000. These orders were granted, and ultimately freezing orders were put in place preserving significant assets of the respondents. The matter was listed for a further directions hearing in June 2018, where directions were made for Evidence-in-Chief to proceed by way of Affidavit material, and a hearing was scheduled for July 2018.
Following an Affidavit sworn on 25 July 2018 by the second respondent, the complexion of the case changed markedly. It appears that the second respondent located a box of old documents in her garage, which caused her to resile from previous statements that she had made in an examination under s. 81 of the Bankruptcy Act 1966 (Cth) (‘the Act’) that was held in 2015. Unsurprisingly, this led to the applicant amending the Statement of Claim, and the requirement for an Amended Defence. Procedural orders to this effect were made by Judge Burchardt on 30 July 2018.
Following the discovery of the aforementioned lost documents, the proceedings were re-pleaded to a much more simple action under s. 120 of the Act, rather than the more complex claims that had previously been pursued under sections 139D and 139E of the Act.
There can be no criticism of the applicant relying upon the statements made during the section 81 examination, particularly given that the applicant was represented by lawyers and an accountant at that examination.
Judge Burchardt ordered that the respondent pay the costs of the application for leave to amend the defence. Judge Burchardt reserved the question of the costs thrown away by reason of the amendment, although given the nature of the proceedings, noted that they would be substantial. It ultimately proved unrealistic to attempt to hear the matter in August 2018, and orders were made for the second further Amended Statement of Claim to be filed and served followed by a Defence.
Given the case had been significantly recast, the parties were directed to attend mediation again, and did so in November 2018. Unfortunately the mediation was unsuccessful.
Following the unsuccessful mediation, a further directions hearing was held in December 2018, at which time a trial listing was set for November 2019 (an unavoidable delay as a result of the pressure of work in this court). In April 2019, an application was made to vary the freezing order, and consent orders made by Judge O’Sullivan.
In August 2019, the respondents made a written offer to settle the proceedings for $150,000 (inclusive of costs), which was not accepted by the applicant. The offer eventually accepted was greater than this offer, once costs is taken into account. Even if the current offer were accepted at the time of the first offer, the costs would have brought the total above the amount of this offer. I do not find the argument that an offer should be accepted simply because a party’s solicitor and own client costs are such that they ultimately achieve less from the litigation by proceeding. Whilst this may be relevant in cases with unusual facts, it would simply serve to encourage litigants to cause greater costs to be incurred if an offer is rejected.
Whilst the parties were all hopeful of proceeding with the final hearing in November 2019, the bankrupt was diagnosed with renal cancer and underwent surgery in late October 2019, following which, the respondents sought to vacate the hearing. Judge Burchardt granted the application to vacate and reserved the question costs. Considerable costs would have been thrown away by the vacation of a hearing of this complexity, so close to the trial date.
Following the vacation of the trial dates in November 2019, the matter was re-listed for trial, this time in 2020 (the delay in assigning a new trial date was again caused by pressure work in court).
Shortly before trial, the respondents made an offer to settle the proceedings, which was accepted by the applicants. The terms of the offer, provided for the respondents to pay the applicant $100,000, in addition to costs.
RELEVANT STATUTES
There are no specific rules in the Federal Circuit Court Rules 2001 (‘FCC Rules’) dealing with offers of compromise in a formal way, and thus the Federal Court Rules 2011 (‘FCA Rules’) apply. Rule 25.03(1) of the FCA Rules provides that an offer must be made either inclusive of costs, or that costs be in addition. Rule 25.12 of the FCA Rules provides that costs may be taxed on a party-and-party basis, up to and including, 14 days after an offer is made. In the FCA Rules the definition of ‘party-and-party costs’ is, “only the costs that have been fairly and reasonably incurred by the party in the conduct of the litigation”.
Whilst the FCC Rules provide lump sum cost scales for family law matters, as well as federal law matters and migration matters, r. 13.01 of the Federal Circuit Court (Bankruptcy) Rules 2016 (‘FCC Bankruptcy Rules’) specifically provides that costs in bankruptcy matters are assessed in accordance with the FCA Rules. Thus, the Federal Court of Australia (‘FCA’) cost scales apply in bankruptcy proceedings. Rule 40 of the FCA Rules provides that where there is no costs order or the court reserves costs, costs should follow the event. Both parties have incurred solicitor and own client costs significantly greater than the sums sought in the application.
FINDINGS
I accept that the applicant is the successful party in these proceedings, having obtained a settlement of $100,000 plus costs.
Since proceedings commenced on 27 October 2016, there have been nineteen sets of orders made in these proceedings. Most of these orders reserved costs, however, as set out in the Applicant’s Outline filed on 13 November 2020 (at paragraph [22]), the exceptions include:
(1)Orders dated 20 July 2018 – costs are not referred to;
(2)Orders dated 30 July 2018 – an order was made that ‘the respondent pay the applicant’s costs of the application dated 24 July 2018 (to amend their Amended Defence and to withdraw admissions) as agreed or taxed’ and that the applicant’s costs thrown away by reason of the amendment are reserved’;
(3)Orders dated 25 November 2019 – an order that, ‘the respondents pay the applicant’s costs of and incidental to this day’ was made on the application to amend the respondents’ Further Amended Defence, withdraw admissions and file an expert report; and
(4)Orders dated 14 May 2020 (made in Chambers), 29 May 2020 (made in Chambers) and 21 August 2020 – each being orders relating to the present dispute relating to the payment of the applicant’s costs. No costs order was made in these three orders.
No costs order has ever been made in favour of the respondents in these proceedings.
Even if the terms of the Offer of Compromise (which was accepted), did not govern the costs question, it is apparent that the applicant has been successful in the action, and that recovery of $100,000 plus costs in these proceedings is a greater sum than the earlier offer made by the respondents. Attempts were made to agitate questions of loss or damage that may have flowed from the freezing order, however, I note that no specific application for damages in this regard was brought, and further, the applicant was certainly entitled to obtain orders sufficient to preserve the amount ultimately obtained in the litigation.
Both parties ask the court for a lump sum amount for costs, as contemplated by the FCA’s ‘Costs Practice Note (GPN-COSTS)’ dated 25 October 2016 (‘FCA Costs Practice Note’). The parties expressed real concerns about the costs that would be involved if a formal taxation of costs occurred pursuant to the Rules. In support of the application for a lump sum order, the applicant provided a report from a costs law specialist (‘costs expert’) who had examined the file and provided an estimate of the party-and-party costs in this matter. Importantly, the costs expert specifically had regard to the relevant FCA Costs Practice Note, and the purpose of such an application being to avoid expense associated with delay and aggravation involved in protracted litigation, arising out of the taxation of costs: see Beach Petroleum NL v Johnson (No 2) (1995) 57 FCR 119 at paragraph [120]. The expert also noted the comments of Sackville J in Seven Network Ltd v News Ltd [2007] FCA 2059. His Honour’s comments in that decision at paragraphs [25] to [30] bear repeating:
25.The authorities establish a number of principles applicable to a claim for a gross sum costs order to be made pursuant to FCR, O 62 r 4(2)(c):
(i)The purpose of the subrule is to avoid the expense, delay and aggravation involved in protracted litigation arising out of taxation: Beach Petroleum v Johnson (No 2), at 120, per von Doussa J, applying Leary v Leary [1987] 1 All ER 261; Harrison v Schipp (2002) 54 NSWLR 738, at 742 [21] per Giles JA.
(ii)An order that costs be assessed as a gross sum does not envisage that any process similar to that involved in taxation should take place. On the contrary, the Court applies a much broader brush than would be used on a taxation of costs pursuant to O 62: Beach Petroleum v Johnson (No 2), at 120, 124, per von Doussa J; Harrison v Schipp, at 743 [22], per Giles JA.
(iii)The Court should be confident that the approach taken to the estimate of costs is logical, fair and reasonable. The Court should be astute to avoid both overestimating the recoverable costs and underestimating the appropriate amount, for example by applying an arbitrary discount to the amounts claimed: Beach Petroleum v Johnson (No 2), at 123, per von Doussa J.
(iv)Although the power to assess a gross sum for costs involves the exercise of a discretion, it is necessary to bear in mind fundamental principles applicable to an assessment of costs on a party and party basis. These include the principles contained in O 62 r 19 (embodying the ‘necessary or proper’ test) and those stated in Stanley v Phillips (1966) 115 CLR 470, at 478, per Barwick CJ (on a party and party taxation the emphasis is upon obtaining adequate representation to enable justice to be done, not upon the propriety of steps taken to ensure maximum success in the cause): Auspine Ltd v Australian Newsprint Mills Ltd (1999) 93 FCR 1, at 4-5 [12]-[15], per O’Loughlin J; Charlick Trading Pty Ltd v Australian National Railways Commission [2001] FCA 629, at [6]-[8], per Mansfield J.
(v)Although the methodology permitted by O 62 r 4(2)(c) initially involves a broader approach than on a normal taxation, the provisions of O 62 and Schedule 2 provide assistance in fixing an appropriate gross sum: Charlick Trading Pty Ltd v ANRC, at [10], per Mansfield J.
26The last point should be developed a little further. FCR, O 62 r 4(2)(c) authorises the Court to order that, instead of taxed costs, the successful party should be entitled to a gross sum costs order. The subrule contains no express direction that the Court is to apply the detailed criteria that are laid down in O 62 and Schedule 2. On the contrary, the subrule apparently leaves the question of quantification at large.
27Rule 4(2)(c) is, however, located within an Order that makes detailed provision for the assessment of party and party costs. It would be extremely odd if the more expeditious procedure contemplated by r 4(2)(c) resulted in either a successful or an unsuccessful party being exposed to an assessment of costs which simply ignores or overrides the basic principles applicable to a taxation of costs. I accept Mr Sheahan’s submission that it would be an error for a Court to use its power under r 4(2)(c) to assess a gross sum clearly higher than that which would be allowed on a taxation of costs.
28On the other hand, it must be borne in mind that r 4(2)(c) establishes a procedure that applies instead of taxed costs. As the cases have stressed, the object of the procedure is to avoid the expense, delay and aggravation that would be involved in a taxation of costs, especially in a lengthy and complex case such as this. The procedure is intended to replace the potentially elaborate process contemplated by O 62 and Schedule 2, whereby a taxing officer meticulously analyses a specially prepared bill of costs by reference to individual items, some of which have distinctly Dickensian overtones.
29It is necessary for the Court to have sufficient information to enable it to make a logical, fair and reasonable estimate. In this respect, as the parties agreed, Telstra bears the onus of establishing that its claim to a gross sum satisfies the applicable test. In practice, this may involve the parties adducing evidence from expert costs assessors addressing whether the costs claimed by the successful party were ‘necessary or proper for the attainment of justice or for maintaining or defending the rights of a party’ (O 62 r 19) or, in more general terms, whether the amounts sought would have been recoverable on a taxation of costs.
30Care should be taken, however, to ensure that the process does not take on too many of the characteristics of a taxation of costs. There is a danger, perhaps reflected to a limited extent in some of the evidence adduced on this application, that the parties will descend too far into the minutiae of the rules governing a taxation and will spend disproportionate time analysing the application of specific items in Schedule 2 to the costs claimed by the successful party. The process should direct attention primarily to issues of principle that explain the differences in the positions taken by each party in relation to the assessment of recoverable costs. For the most part, the reports and oral evidence of the experts in this matter concentrated on the more general issues.
Counsel for the respondents referred to the comments of Kenny J in Bitek Pty Ltd v IConnect Pty Ltd [2012] FCA 506 at [18]; 290 ALR 288, affirmed by Markovic J in LFDB V Ms S M (No 2) [2018] FCA 2062 at paragraph [8], noting that costs should be proportionate to the nature of the proceedings, including the complexity of the case. It appears to me that this is an important observation, but not one that is intended to constrict or derogate from the definition in the respective Rules, which require that costs be ‘fairly and reasonably incurred’. In order to determine whether costs have been fairly and reasonably incurred one must have regard to the nature of the proceedings and in this respect fair and reasonable costs must be some proportionality to the proceedings.
Proportionality is often difficult to assess in complex litigation. Beach J said, in Foley v Gay [2016] FCA 273 that:
24.Proportionality looks to the expected realistic return at the time the work being charged for was performed, not the known return at a time remote from when the work was performed; at the later time, circumstances may have changed to alter the calculus, but that would not deny that the work performed, and its cost was proportionate at the time it was performed. Perhaps the costs claimed can be compared with the known return, but such a comparison ought not to be confused with a true proportionality analysis. Nevertheless, any disparity with the known return may invite the question whether the costs were disproportionate but would not itself answer that question.
In the later decision of Blairgowrie Trading Ltd v Allco Finance Group Ltd (Receivers & Managers Appointed) (In Liq) (No 3) [2017] FCA 330 (‘Blairgowrie Trading Ltd’), His Honour said:
181.But what is claimed for legal costs should not be disproportionate to the nature of the context, the litigation involved and the expected benefit. The Court should not approve an amount that is disproportionate. But such an assessment cannot be made on the simplistic basis that the costs claimed are high in absolute dollar terms or high as a percentage of the total recovery. In the latter case, spending $0.50 to recover an expected $1.00 may be proportionate if it is necessary to spend the $0.50. In the former case, the absolute dollar amount as a free-standing figure is an irrelevant metric. The question is to compare it with the benefit sought to be gained from the litigation. Moreover, one should be careful not to use hindsight bias. The question is the benefit reasonably expected to be achieved, not the benefit actually achieved. Proportionality looks to the expected realistic return at the time the work being charged for was performed, not the known return at a time remote from when the work was performed; at the later time, circumstances may have changed to alter the calculus, but that would not deny that the work performed and its cost was proportionate at the time it was performed. Perhaps the costs claimed can be compared with the known return, but such a comparison ought not to be confused with a true proportionality analysis. Nevertheless, any disparity with the known return may invite the question whether the costs were disproportionate, but would not sufficiently answer that question.
The role of the court on a lump sum application (the process both parties in this case have chosen over taxation of costs), is not that of a taxing registrar or master (see Blairgowrie Trading Ltd at paragraph [180]). Ultimately, a decision on a lump sum basis will be one of impression and degree, having regard to the nature of the proceedings, the cost scales and evidence of how the costs are estimated. If litigants wish to avoid such an approach they have the option of a detailed taxation of costs on the traditional methodologies.
Whilst inappropriate recording of time in time costing environments is likely to inflate legal fees, time costing is nonetheless an accepted mechanism for assessing costs in the legal industry, and indeed is specifically acknowledged in the scale of costs in the FCA Rules, which provides for rates for solicitors on six minute intervals (as used in time costing).
In considering the costs of these proceedings, a number of factors must be borne in mind:
(a)First, the case as originally presented was based upon the statements that were made in the section 81 examination of the second respondent;
(b)The case, based upon the evidence in this section 81 examination, involved a large sum of money (nearly $1 million);
(c)The case originally drawn relied upon complex provisions of the Act;
(d)The case changed significantly after the respondent located old documents, obtained leave to withdraw admissions, and reformulated the defence;
(e)The trial was deferred on two separate occasions, the first occasion being due to the change of defence, and the second occasion being the unfortunate illness of the bankrupt; and
(f)Finally, despite the very large number of interlocutory events, the applicant was never ordered to pay costs of an interlocutory event.
The actual costs incurred between by each party with their own legal representatives was in the order of $400,000. This is not a case where one side’s actual costs are out of proportion to that incurred by the other.
Expert Costs Report
The summary of the costs sought is set out at paragraph [11] of the Costs Report (Annexure CN-2 of the Affidavit filed by the Applicant on 14 September 2020). The author, Mr John Colonna (‘costs expert’) says:
Summary
11. Based on the assessment outlined below, it is my opinion, based on my experience, that recoverable costs inter partes are:
Professional Costs
$135,626.44
Counsels’ fees
$117,321.34
Sundry disbursements and expert fees
$11,972.32
Costs of this application
$25,040.00
TOTAL
$289,960.10
The methodology adopted by the costs expert was to review the records, including the time records, and categorise them both by fee earner and by category of work. The costs expert noted that the fees charged by the fee earners in this case did not exceed the scale rates for solicitors (in fact the principal solicitor charged an hourly rate somewhat below the maximum scale rate). That notwithstanding, adjustments were needed, as some of the work could have been undertaken by a more junior lawyer or paralegal, and some of the hourly rates for law clerks were greater than the scale rates. The costs assessor also had regard to charges for reading correspondence, and offered an opinion following a sampling of items on the file as to the likely result of a careful taxation, both with respect to the setting and preparation of court documents and other documents,.
The costs expert stated that in his recent experience, bills sent for taxation on a party-and-party costs basis were usually reduced by 15 to 25%, due to the more limited nature that of party-and-party costs. As a result of this, he factored in a reduction of 25% to the professional fees in this matter.
With respect to a loading for “skill, care and responsibility”, the costs assessor noted that item 11 of the scale allows for an adjustment, having regard to skill, care and responsibility. He suggests loading 10% to that amount, having regard to the nature and complexity of the proceedings and the specialised knowledge and responsibility involved. As a result of these assessments, he reached the figure struck for solicitors fees.
With respect to the fees provided by Counsel, the costs expert made an adjustment from a total of $166,322.60, down $138,025.10. These fees were for Senior Counsel with a Junior. The Junior completed nearly 200 hours work. The costs assessor had regard to the rates for Counsel, given the costs guide set by the court. He noted that the Junior Counsel’s hourly rates were at the lower end of the range, and therefore, he did not adjust the fees charged by Junior Counsel. The costs expert noted that the Senior Counsel’s fees were greater than those set by the scale, and so reduced them. The costs expert also cautiously reduced Counsel’s fees overall (by 15%) to reflect the reality that not everything Counsel did was likely to be recoverable on a party-and-party basis, reaching a total for Counsel’s fees at $117,321.34, an overall reduction of nearly $50,000. The costs expert had no issue with the costs incurred in outlays and expert reports.
Despite the exhortation in the FCA Costs Practice Note, for the use of the lump sum application process to simplify issues relating to costs, Counsel for the respondents made submissions analysing in considerable detail the costs assessors report.
PROFESSIONAL COSTS
Counsel’s fees
It was argued by the respondents that Counsel’s fees should be constrained to a range of $50,000-$80,000 for a number of reasons:
(1)Firstly, that only $100,000 was recovered, and that this did not justify the fees for Senior Counsel, and that this should be excluded;
(2)Secondly, that if fees for Senior Counsel are not excluded, they should be reduced with respect to preparing the Amended Statement of Claim, it seems, on the basis that the previous Statement of Claim was settled with;
(3)Thirdly, that an attendance duration of 2.75 hours by Senior Counsel upon the solicitors of the major creditor should be disallowed and that the fees for preparation and attendance, when the matter was adjourned (as a result of the bankrupt’s health issues) and so should be adjusted;
(4)Fourthly, an argument that Senior Counsel’s hourly rate was not reasonably struck by the costs expert, having regard to the amount involved in the matter; and
(5)Finally that a discount greater than 15% should have been applied, given that the proceedings involve only $100,000 and that there would have been ‘is inevitable duplicates’ is using to Counsel.
Whilst the amount recovered in proceedings is a strong indicator of the level of complexity of the matter, and in turn, the reasonableness of the fees charged, one cannot look at cases solely through such a lens. Many complex cases ultimately involve relatively small amounts of money in comparison to legal fees. In this case there was considerable complexity, and considerable additional costs incurred as result of the change of position from the evidence originally given that the section 81 examination. That change of position drove significant costs to be incurred.
I accept that attendance upon the creditor’s solicitors are more likely to fall outside party-and-party costs, particularly given that Senior Counsel was instructed by an experienced solicitor. I do not accept that it was unreasonable for preparation fees to be charged, when the trial was adjourned due to the ill-health of the bankrupt: that work was undertaken and effectively wasted through no fault of the applicant. The other complaints must be viewed in light of the reductions already made by the costs expert.
Having regard to all of these matters, on a lump sum basis, I would allow $100,000.00 for Counsel fees.
Solicitor Fees
Counsel for the respondents also argued that the costs of preparing Amended Statements of Claim should not be allowed in full, given the involvement of senior lawyers and the costs incurred in preparing Statements of Claim. There does not appear to be an adequate explanation for why the Statement of Claim required extensive amendment in September 2017. Thereafter, however, it appears that the amendments were driven by the change of position by the respondents. I accept that some adjustment is required to reflect this.
Freezing order
Considerable submissions were made with respect to the freezing orders. The respondent suggested that those were a luxury of litigation, given that considerably less was obtained as a result of the litigation than that frozen pursuant to such orders. It must be borne in mind, however, that the freezing orders were obtained prior to the change of position of the respondents in the litigation. To the extent that the amendment to the freezing order was alleged to have been unreasonably opposed, that could have been the subject of a costs application before Judge O’Sullivan, at the time. I am not persuaded that the applicant should not recover the party-and-party costs involved in obtaining the freezing orders in these proceedings.
Disbursements
I do not accept that the disbursements, in particular, the costs of the expert reports were unreasonable. I accept the costs expert’s evidence in this regard. The matter involved complex transactions and numerous records covering many years’ finances.
I reject the criticism of the assessor using a sample from the file to make estimates. It is a practical methodology that offers a reasonable estimate at low cost. If the respondents wished to challenge it, they could have inspected the file and prepared their own sample. More significantly, the respondents could have sought a taxation of the costs if they sought to examine every item.
The loading for skill, care and responsibility appears reasonable, given the complexity of the matter and the seniority of the practitioners involved.
Having regard to the matters set out above, I would strike lump sum figure for professional costs at $120,000.00
SETTLEMENT OFFERS
Counsel for the respondent argues that a further reduction in costs generally should be made, as result of the amount which the matter ultimately settled upon, having regard to the context of the previous offer. The previous offer was significantly less than what the applicants have achieved, therefore, does not present a basis for denying costs. The references in argument to Specsavers Pty Ltd v The Optical Superstore Pty Ltd (No 4) [2012] FCA 652, a case in which costs were reduced as a result of the failure of a party to respond to overtures to settle proceedings, do not appear in this case, given the late discovery of the core information that changed the complexion of the case. The proportionality of these costs must be seen in light of the fact that the case would have been quite different had there been full and frank disclosure of the material in section 81 examination, and the trial not adjourned as a result of ill-health bankrupt. I do not accept that a further adjustment is appropriate as a result of these factors.
COSTS APPLICATION
The respondents also take issue with the amount assessed for the costs associated with the costs application, which appears large in the abstract. However, this amount is around 50% professional fees and 50% the costs of having a costs expert assess and prepare a report. It does not appear to me to be appropriate to refuse to allow the costs of that report simply because criticisms can be made of some of the findings in the report. The report provided an essential summary of the costs incurred in the matter, from which proper considerations could be undertaken to strike an appropriate lump-sum costs order.
To the extent that the amount represents professional costs appears to be out of proportion to the complexity of the limited costs issues, even after the cost assessors discounting.
The respondent also argues that the amount ultimately obtained by the applicant for costs will be considerably less than the amount sought, and therefore the applicant ought to pay for the costs associated with the costs report. In this case, however, the amount achieved by the applicant is closer to the amount that they sought than the amount propounded by the respondent. It was open to the respondent to make an offer with respect to the costs issue, just as was open to the applicant to do so. Neither party made a formal offer.
The applicant also sought to rely upon the ‘one-sixth rule’ (now 15% in the current court rules) that applies to taxations before a Registrar for determining who should bear the costs of the taxation. This does not appear appropriate in lump-sum costs applications where both parties seek to have the court deal with the matter on a lump sum basis: the usual principles should apply to the application in the case which allows each party to make formal offers to settle in the usual way. In any event, the amount has not been reduced by more than 15%.
The applicant has succeeded in obtaining a substantial costs order and should have his costs of the application, although the professional fees appear high for a costs application (even bearing in mind the complexities) and on a party-and-party basis, one Counsel would have been sufficient on the costs application.
I would order $20,000 with respect to the costs application (inclusive of the fee to the cost assessor).
CONCLUSION
The total that I have reached is $251,972.32 I note that this figure less than two thirds of the amount that either side actually spent on the litigation, however it is a figure that represents the amount of costs ‘fairly and reasonably’ incurred as contemplated by the rules bearing in mind the need for proportionality of costs to the issues, complexity, length and value of the litigation.
I therefore order the respondents to pay the applicant costs fixed to $251,972.32.
I certify that the preceding fifty-three (53) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Riethmuller. Associate: Méabh Loughnane
Dated: 31 May 2021
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