Bogan v The Estate of Peter John Smedley (Deceased) (Security for Costs)

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE
COMMERCIAL COURT
GROUP PROCEEDINGS LIST

S ECI 2020 03281

BETWEEN:

ANTHONY BOGAN & ANOR (according to the attached Schedule)	Plaintiffs
v
THE ESTATE OF PETER JOHN SMEDLEY, DECEASED & ORS (according to the attached Schedule)	Defendants

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JUDGE:	Hetyey AsJ
WHERE HELD:	Melbourne
DATE OF HEARING:	16 August 2022
DATE OF JUDGMENT:	8 March 2023
CASE MAY BE CITED AS:	Bogan v The Estate of Peter John Smedley (Deceased) (Security for Costs)
MEDIUM NEUTRAL CITATION:	[2023] VSC 105

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PRACTICE AND PROCEDURE — Application for security for costs by defendants in group proceeding raising complex issues about proper valuation and reporting of insolvent mining company — Quantum of security — Where large discrepancy between amount sought by defendants and amount offered by plaintiffs — Where defendants seek security for costs up to and including trial — Costs incurred prior to application for security — Principles to be applied — Broad brush evidentiary assessment of what is just and reasonable in all the circumstances — Whether global discount may be applied in addition to evidentiary assessment of individual items and categories of work claimed — Exercise of Court’s broad discretion — Where security may be provided by way of after-the-event insurance policy — Where security to be provided in tranches — Consideration of timing and amount of each tranche.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Ms M Szydzik of counsel	Banton Group
For the First to Fourth Defendants	Ms A Munro of counsel	Baker McKenzie

TABLE OF CONTENTS

Introduction........................................................................................................................................ 1

Background and procedural history............................................................................................... 2

Relevant principles............................................................................................................................ 6

Methodology of parties and preliminary issues.......................................................................... 8

Summary of methodology of parties................................................................................ 8
Whether double discounting used by plaintiffs?.......................................................... 12
Application of global discount........................................................................................ 14
Preference of evidence...................................................................................................... 20
Relevance of group costs order to Court’s discretion.................................................. 22
Relevance of ‘reality checks’ to director defendants’ estimates................................. 24

Review of categories of costs claimed.......................................................................................... 25

Approach to be adopted................................................................................................... 25
Expert fees........................................................................................................................... 28
Preparing and reviewing evidence................................................................................. 29
Document review and discovery.................................................................................... 33
Trial...................................................................................................................................... 35
Trial preparation................................................................................................................ 36
Past costs............................................................................................................................. 38
Correspondence and conferences not otherwise provided for................................... 41
Other disbursements......................................................................................................... 42
Case management hearings and interlocutory applications....................................... 43
Mediation............................................................................................................................ 47
Summary of amounts claimed and amounts allowed by Court................................ 47

Application of global discount...................................................................................................... 49

Tranches of security......................................................................................................................... 51

Conclusion......................................................................................................................................... 54

HIS HONOUR:

Introduction

Before the Court is a security for costs application made by the first to fourth defendants (‘director defendants’) in a group proceeding that concerns the insolvent mining company, Arrium Corporation Limited (in liq) (‘Arrium’). The parties initially prepared their evidence and written submissions on the basis there was a dispute about whether the Court’s jurisdiction to grant security was engaged in the circumstances of the case and, if so, whether, as a matter of discretion, security ought be awarded. However, by the time of the hearing of the application, those matters were no longer in contention. The parties had agreed that security for costs should be granted and also the form of security that may be ordered. Accordingly, it is unnecessary for the Court to consider those aspects any further.

However, there remains a chasmic gap between what the plaintiffs and director defendants say is an appropriate level of security to be provided. The quantum of security sought by the director defendants is $7.97 million, whereas the plaintiffs contend the sum sought is unjust and a security amount of approximately $3 million is instead appropriate. Further, while the parties agree security should be provided in tranches, they disagree about the timing and amounts of those tranches.

There are other noteworthy features of this application. Whilst the parties have filed voluminous affidavit material,[1] neither side has enlisted the services of an independent expert or costs assessor to proffer an independent view on the anticipated costs of the director defendants in defending the proceeding. The parties have also each approached the application on the basis that the security sum should cover the entirety of the proceeding, including a trial, instead of only applying to the period up to the preparation of evidence or the conduct of a mediation, as might conventionally occur.[2]
[1]The director defendants rely on affidavits and exhibits in support of the security for costs application, which span approximately 387 pages, including the affidavit of Mark Chapple affirmed on 11 July 2022, the body of which is 99 pages in length (excluding formal parts), and which did not have any exhibits. The plaintiffs rely on affidavits and exhibits of approximately 166 pages in length.
[2]See, eg, Norcast S.ár.L v Bradken Ltd [2012] FCA 765, [36] (Gordon J) (‘Norcast’); Bodycorp Repairers Pty Ltd v GDG Legal Pty Ltd [2017] VSC 200, [71] (Matthews JR, as her Honour then was) (‘Bodycorp Repairers (No 1)’), citing US Realty Investments LLC #1 v Need [2013] VSC 590, [64] (‘US Realty’); Troiano v Voci (2019) 61 VR 511, 526 [49] (Riordan J).

Background and procedural history

The group proceeding was commenced on 14 August 2020 by Mr Anthony Bogan and Mr Michael Walton under Pt 4A of the Supreme Court Act 1986 (Vic) (‘Supreme Court Act’) as representative plaintiffs on behalf of persons who were shareholders of Arrium between 19 August 2014 and 4 April 2016. The group members claim to have suffered loss or damage by reason of the conduct of the director defendants (who were Arrium’s former directors) and Arrium’s auditor, the fifth defendant (‘KPMG’).

The proceeding raises complex issues about the proper valuation and reporting of Arrium’s consolidated assets. In short compass, the plaintiffs allege that: impairment indicators at specific points in time required Arrium to have recognised significant impairment losses on those assets; that specific financial reports of Arrium failed to comply with various Australian Accounting Standards and the Corporations Act 2001 (Cth) (‘Corporations Act’) and did not give a true and fair view of Arrium’s financial position and performance; that Arrium contravened its continuous disclosure obligations under ASX Listing Rules and the Corporations Act; and that the director defendants are liable for misleading or deceptive conduct and false or misleading statements by reason of opinions expressed in the financial reports and as a consequence of announcements, presentations, and notices made or given in connection with a $754 million capital raising undertaken by Arrium in September 2014.

The proceeding has historically been funded by a Singapore-based litigation funder, Equite Capital No 1 Pty Ltd (‘funder’), pursuant to the terms of funding agreements made between the funder and the plaintiffs, together with some, but not all, of the group members (‘original funding agreements’).

The terms of the original funding agreements were considered in the 26 April 2022 decision of John Dixon J in Bogan v The Estate of Peter John Smedley (Deceased),[3] which concerned an application by the plaintiffs for a group costs order pursuant to s 33ZDA(1)(a) of the Supreme Court Act (‘group costs order decision’). On 3 May 2022, his Honour made a group costs order (‘group costs order’) with the effect that:
[3][2022] VSC 201 (‘Group Costs Order Decision’).

(a) the legal costs payable to the plaintiffs’ solicitors, Banton Group Pty Ltd (‘Banton Group’), be calculated by reference to 40% of any award or settlement obtained in the proceeding and shared equally with the funder;

(b) the liability for legal costs payable be shared between the plaintiffs and group members; and

(c) the group costs order is conditional upon the Court being provided with satisfactory evidence of the termination of the original funding agreements and a written undertaking by the funder that it will not seek to enforce its rights under the original funding agreements.

The application for the group costs order was made on the basis that, if successful, Banton Group would enter into a new costs sharing agreement with the funder (‘costs sharing agreement’). The key terms of the costs sharing agreement were summarised by John Dixon J in the group costs order decision as follows:[4]
[4]Ibid [62].

(a) the funder will pay 50% of Banton Group’s costs, calculated at their usual hourly rates, and 100% of disbursements;

(b) Banton Group will pay 50% of any payment it receives pursuant to the group costs order to the funder, after deducting the costs paid by the funder, and after Banton Group is paid the outstanding 50% of its fees;

(c) after a group costs order is obtained, Banton Group will be required to indemnify the representative plaintiffs or provide an undertaking to pay any adverse costs orders against them;

(d) the funder will pay any adverse costs that Banton Group has to pay on behalf of the representative plaintiffs, pursuant to Banton Group’s indemnity or undertaking;

(e) if security for costs is ordered, the funder will provide 100% of the total amount of security ordered by way of an after-the-event insurance policy (‘ATE policy’); and

(f) the proceedings are to be conducted in accordance with a project costs budget, with the ability to vary the budget by agreement or a pre-determined mechanism.

The director defendants’ summons seeking security for costs was issued on 16 March 2022, amended on 3 June 2022, and further amended on 11 August 2022. The application is supported by the following affidavits affirmed by Mark Desmond Chapple, a partner at Baker McKenzie, along with various accompanying documents:

(a) affidavit of Mr Chapple affirmed on 16 March 2022 (‘Fourth Chapple affidavit’), which sets out the costs incurred by the director defendants to date and Mr Chapple’s then current estimates of future costs;

(b) affidavit of Mr Chapple affirmed on 13 May 2022 (‘Seventh Chapple affidavit’), which updated certain estimates in the Fourth Chapple affidavit based upon further information obtained concerning the likely size and scope of the discovery process;

(c) affidavit of Mr Chapple affirmed on 11 July 2022 (‘Eighth Chapple affidavit’), which is responsive to the plaintiffs’ affidavit material and which further updates the estimates contained in his previous affidavits; and

(d) affidavit of Mr Chapple affirmed on 19 July 2022 (‘Ninth Chapple affidavit’), which corrects errors in the Eighth Chapple affidavit.

The director defendants also rely upon amended written submissions dated 20 July 2022 and an aide memoire produced at the hearing of the application, which identifies the key differences between the parties in terms of the costs categories the subject of the application.

In resisting the amount of security sought by the director defendants, the plaintiffs rely on the affidavits of their solicitor, Ms Amanda Banton, a partner at Banton Group, sworn on 9 June 2022 and 9 August 2022 (‘Fifth Banton affidavit’ and ‘Seventh Banton affidavit’, respectively), together with written submissions dated 10 August 2022.

On 27 April 2022, the director defendants’ application for security for costs came before me for directions. I made orders permitting the parties to file affidavit material and submissions in relation to the application and listed it for final hearing on 16 August 2022. On 13 May 2022, the case came back before Nichols J for further directions in the matter generally. Her Honour made orders allowing KPMG to file and serve any summons and affidavit material in support of its own application for security for costs and set up a timetable for that application to be heard at the same time as the director defendants’ application for security for costs. On 30 May 2022, I made orders allowing the director defendants to file and serve an amended summons in respect of their security for costs application and on 11 August 2022, the director defendants were given leave to file a further amended summons seeking security for costs. The time for compliance with previous orders for the filing of affidavit material was also extended and the plaintiffs were granted leave to file additional affidavit material.

On 12 August 2022, I made orders by consent that the plaintiffs provide security for KPMG’s costs of the proceeding in the sum of $3.7 million by way of staged tranches and allowing the plaintiffs the right to substitute any cash paid into Court with an ATE policy. In the event the plaintiffs elect to satisfy their security for costs obligations to KPMG by way of an ATE policy, or seek to substitute any cash paid into Court with an ATE policy, the orders required the plaintiffs to provide a direct deed of indemnity between an ATE policy provider and KPMG, which must contain certain specified key terms. Those terms include an unconditional and irrevocable undertaking from the ATE policy provider to pay KPMG any sum the plaintiffs are legally liable to pay with respect to KPMG’s costs of the proceeding.

The director defendants’ application for security proceeded to hearing on 16 August 2022. Given the extent of difference between the parties on the quantum of security, the extraordinary volume and iterative nature of the material relied upon, differing approaches taken by the parties in relation to the applicable principles, and the significant and complex nature of the litigation itself, it was necessary for me to reserve my decision on the application.

Relevant principles

It is convenient to briefly review a number of authorities that deal with the applicable methodology when undertaking an assessment of the appropriate amount of security to be awarded in a particular case.

In Trailer Trash Franchise Systems Pty Ltd v GM Fascia & Gutter Pty Ltd (‘Trailer Trash’),[5] the Victorian Court of Appeal provided the following guidance on the Court’s function in assessing an appropriate amount of security for costs:

[T]he court does not seek to provide full protection for the estimated costs of the party seeking security. Rather, having regard to the fact that the order for security is usually made at an early stage of a proceeding and there are many contingencies that will affect the actual costs incurred by that party, the court fixes an amount that it considers adequate in all the circumstances of the case. Those circumstances include the nature of the proceeding, the nature and complexity of the steps that need to be undertaken by the party seeking security, the likely costs in undertaking those steps, the length of the trial, any security already provided, and the possibility that the proceeding may settle.
In determining a sufficient amount for security for costs, the court does not undertake precise mathematical calculations. Rather, it adopts a ‘broad brush’ approach involving ‘guesstimates as much as estimates’. However, the broad brush approach does not involve an abstract process. It must have an evidentiary basis. The court must have regard to the evidence adduced by the parties as to quantum — whether in the form of an affidavit by an experienced litigation lawyer or an expert report by a costs consultant — although it is not bound by the parties’ estimates. The court may scrutinise the individual items in the parties’ estimates, but not to the extent of minute examination akin to a taxation.
The amount ultimately fixed by the court must not be so low that it fails to provide any real protection to the party seeking security, or so high that it is oppressive to the party required to provide the security. The amount must be ‘just and reasonable’ in all the circumstances of the particular case.[6]

[5][2017] VSCA 293 (‘Trailer Trash’).

[6]Ibid [63]–[65] (Tate and Kyrou JJA) (citations omitted).

Because the Court is not bound by the evidence put forward by the parties, it is not compelled to choose which of the parties’ competing evidence to accept. Instead, in exercising its discretion to order security for costs, the Court must stand back from the precise estimates put forward and form its own view based upon the facts, making an order that is just and reasonable in the circumstances.[7]
[7]Wollongong City Council v FPM Constructions Pty Ltd [2004] NSWSC 523, [50] (Einstein J).

Further, in Carey-Hazell v Getz Bros & Co (Aust) Pty Ltd,[8] French J (as his Honour then was) said:

As to the quantum of security, a conservative approach should be taken while having regard to the estimate of the respondents. It is not required that an order for security provide a complete indemnity. In a sense it is a balancing of risks and burdens between the parties.[9]

[8][2004] FCA 1334 (‘Carey-Hazell’).

[9]Ibid [36].

To reflect the uncertainties inherent in litigation and the imprecision associated with predicting future costs, courts have, as a matter of discretion, applied a global discount to the relevant cost estimate put forward.[10] Discounting factors include: the chance of a case collapsing without coming to trial with the consequence that the security ordered turns out to be an over-provision; the apparent prospects of success insofar as they are discernible; the extent and quality of the information provided to the Court, on which it can estimate the amount of costs; the fact that an order for security should not effectively deny the applicant a right to pursue the claim; the extent to which the defendant’s costs will relate to a case that is not essentially defensive; and the real prospect that the amount sought would be reduced by a taxing officer.[11]
[10]Farmitalia Carlo Erba SrL v Delta West Pty Ltd (1994) 28 IPR 336, 345–6 (Heerey J) (‘Farmitalia’); Beluga Developments Pty Ltd v Sobel Investments Pty Ltd [2010] VSC 303, [24] (Mukhtar AsJ); Pathway Investments Pty Ltd v National Australia Bank Ltd [2012] VSC 97, [54]–[55] (Davies J) (‘Pathway Investments’).
[11]Farmitalia, 345–6 (Heerey J).

Methodology of parties and preliminary issues

Before considering each of the relevant work streams the subject of the security for costs application, it is appropriate to summarise the respective approaches taken by the parties in relation to the application and deal with a number of high-level preliminary issues that were framed by the parties during their submissions.

Summary of methodology of parties

Unfortunately, given the iterative and extensive nature of the director defendants’ evidence, the methodology employed in calculating the total amount of security sought (the sum of $7,970,000) is convoluted and somewhat confusing.[12] To some extent, the position is clarified by the aide memoire provided at the hearing, although the document itself appears to contain inconsistencies.[13] Extrapolating figures from a number of documents relied upon (principally, the Fourth Chapple affidavit, Seventh Chapple affidavit, Eighth Chapple affidavit, and the aide memoire), the director defendants’ approach to the exercise can be summarised in the following way.
[12]For example, the table at [172] of the affidavit of Mark Chapple affirmed on 11 July 2022 (‘Eighth Chapple Affidavit’) purports to include past costs and future costs to arrive at a total costs actual amount of $10,846,097 and a claimed party–party costs amount of $7,970,000, but does clearly identify a component in respect of past costs. The total of all the director defendants’ estimated actual costs referred to in the footnotes of the aide memoire produced at the hearing, which are used to compile the party–party estimate figures in the second column of the document is $11,096,697.36 (see Table 2 at [114] of these reasons). Further, the aide memoire states that calculation errors understate the true party–party estimate amount, which might have been claimed after deductions. According to the document, the true party–party estimate is either $8,133,380.49 (as set out in the bottom of the second column) or $8,120,000 (as set out in n 19). However, the Court’s tabulation of the party–party estimate figures in the second column of the aide memoire is $8,133,280.49. The difference in figures is said to arise as a result of $3,707,494.26 in solicitors costs and $3,700,000 when rounded, rather than $3,350,000, which I note is close to the rounded figure for party–party solicitors’ costs is identified in the table at [172] of the Eighth Chapple affidavit of $3,550,000. Even allowing for these differences, the total security amount sought would be $7,783,380.49 and not the $7,970,000 claimed. In any event, the aide memoire makes clear that only $7,970,000 is sought by the director defendants by way of security on a party–party basis.
[13]See ibid.

The director defendants have firstly calculated the total estimated future costs of the proceeding from 1 March 2022 up to and including trial to be $10,846,097, inclusive of all fees and disbursements (excluding GST), although the figure I arrive at is $10,841,852 (excluding GST) (‘future costs’). Additionally, the director defendants’ actual costs and disbursements is $678,852.36 (excluding GST) from the commencement of the proceeding on 14 August 2020 to 28 February 2022 (‘past costs’). The total for future costs and past costs is $11,426,297.36, which has been rounded down to $11,420,000. However, on my arithmetic, the total figure is closer to $11,520,704.36 (‘estimated total actual costs’). Then, the director defendants applied percentage discounts on a gross sum basis to arrive at an estimate of their ‘reasonable costs on a party/party taxation on a standard basis’, which assumes a 60% recovery in respect of solicitor’s fees and a 90% recovery in respect of disbursements, including counsel fees (‘established party–party recovery rates’).[14] The recovery rates adopted are said to be conservative. The resulting amounts can be summarised in the following table (which, again, extrapolates the various figures provided throughout the director defendants’ material):
[14]Any reference to party–party costs in these reasons should be taken as a reference to costs on ‘the standard basis’ in accordance with the terminology used in Order 63 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic). The Court has adopted the reference to party–party costs for convenience given that is the term referred to by the director defendants and the plaintiffs in the security for costs application.

Table 1 — High-level breakdown of director defendants’ estimated actual costs and party–party costs

Category Estimated total director defendants’ actual costs amount by general category (excluding GST) Assumed percentage recovery in party–party taxation on standard basis Estimated recovery of in party–party taxation on standard basis (excluding GST) (rounded down)

Solicitors’ fees $5,929,157[15] 60% $3,557,494.20 rounded down to $3,550,000[16]

Counsels’ fees $1,825,095[17] 90% $1,642,585.50 rounded down to $1,640,000[18]

Expert fees $2,800,000[19] 90% $2,520,000[20]

Other disbursements $287,600[21] 90% $258,840 rounded down to $258,000[22]

TOTAL future costs $10,841,852[23] $7,968,000

PLUS past costs $678,852.36[24] 60% for solicitors fees and 90% for disbursements, including counsel fees $418,753.49[25]

TOTAL $11,520,704.36 estimated total actual costs $8,386,753.49[26] estimated total party–party costs, but only $7,970,000 pressed
[15]Eighth Chapple Affidavit, [172] (Table, Item 1).
[16]Ibid.
[17]Ibid (Table, Item 2).
[18]Ibid.
[19]Ibid (Table, Item 3).
[20]Ibid.
[21]Eighth Chapple Affidavit, [163]; Fourth Chapple Affidavit, [60(d)], although item 4 of the summary table at [172] of the Eighth Chapple Affidavit refers to a figure of $291,845 without clear explanation.
[22]Eighth Chapple Affidavit, [163] and n 14 of the aide memoire.
[23]Although the total actual costs figure at item 5 of the table at [172] of the Eighth Chapple Affidavit is $10,846,097.
[24]Fourth Chapple Affidavit, [53]; Seventh Chapple Affidavit, [25(d)]; Eighth Chapple Affidavit, [44], [49] [51], [53]; item 6 and n 11 of aide memoire.
[25]Item 6 and n 11 of aide memoire.
[26]However, the director defendants’ aide memoire suggests the correct figure after deductions is $8,133,280.49, which allows for calculation errors. The aide memoire confirms only $7,970,000 is pressed.

The director defendants then compared the estimated total actual costs (ie: prior to the application of the established party–party recovery rates) against:

(a) defence costs of $10.3 million in three New South Wales Supreme Court proceedings concerning Arrium (‘three Arrium proceedings’). Approximately 70% of the defence costs in the three Arrium proceedings equates to $7.2 million. The three Arrium proceedings concern questions arising from the adequacy of impairments and the carrying value of assets and involves the second, third, and fourth defendants in the present proceeding. The director defendants’ lawyers also have instructions to act in the three Arrium proceedings;

(b) defence costs of around $19 million in the Federal Court of Australia representative proceeding Hopkins v AECOM Australia Pty Ltd (No 8)[27] (‘AECOM representative proceeding’); and

(c) a summary of Australian class action proceedings resolved between 2001 and 2020, including the AECOM representative proceeding and the distribution of settlement amounts among class members, legal representatives, and third-party funders, prepared by the Law Council of Australia (‘Law Council’) as part of a submission to the Parliamentary Joint Committee on Corporations and Financial Services dated 16 June 2020, including investor or securities class action proceedings (‘similar proceedings’). An analysis of 44 of these similar proceedings reveal the average quantum of approved legal fees to be $7.84 million.

[27](2016) 343 ALR 662 (‘Hopkins’).

In considering the similar proceedings, Mr Chapple acknowledges the data relates to the approved legal costs of claimants in representative or class actions rather than defendants’ costs, but there is nothing per se, that makes the legal costs of acting for a claimant inherently higher than the legal costs of defending the same claim. Instead, in his experience, whether or not a claimant’s costs are higher than a defendant’s costs (or vice versa) will depend upon the circumstances of the particular case and multiple factors, including the number of clients, factual matters in dispute, and the number of documents and witnesses.

Mr Chapple deposes that as a consequence of the ‘reality checks’ undertaken in respect of the three Arrium proceedings and the similar proceedings, he has no reason to believe that the estimated total actual costs calculated (prior to applying an assumed percentage recovery) have been materially over-stated, though he acknowledges it is an inexact estimation process based on assumptions as to the future conduct of the present proceeding.

The total amount sought for past costs and future costs is therefore $7,970,000, which is said to represent a reasonable estimate of the director defendants’ costs that the plaintiffs, if unsuccessful at trial, would be ordered to pay on a party–party basis.

The plaintiffs contend the amount sought by the director defendants reflects full protection for their estimated party–party costs, which is not the function of a security for costs order.[28] In offering an alternative security amount of $3,000,095.86, the plaintiffs say they have arrived at a figure that would represent the director defendants’ costs on a party–party basis.[29] While the director defendants have commenced the exercise by estimating the actual costs of defending the litigation, the plaintiffs have started by considering the costs of the director defendants on an indemnity basis or costs that are ‘not unreasonable indemnity costs’. Broadly speaking, in her affidavit material, the plaintiffs’ solicitor, Ms Banton, reviews the description of the work and tasks associated with each category identified by the director defendants and proffers her understanding of what work would realistically be involved in undertaking each of those tasks, the level of seniority of practitioner necessary to perform that work, and the reasonableness of the amounts claimed. In other words, the plaintiffs’ material challenges a number of assumptions underpinning the director defendants’ evidence and puts forward alternative assumptions. This results in an adjusted figure of around $3.75 million to reflect ‘reasonable recoverable costs’ against which percentage discounts are applied to produce a party–party position of $3,000,095.86. In arriving at this final figure, the plaintiffs assess the past costs to be $192,188.41 on a party–party basis and by reference to the Supreme Court of Victoria Scale of Costs (‘Scale of Costs’) found in Appendix A to the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (‘Rules’) (noting that the director defendants have claimed $418,753.49).

Whether double discounting used by plaintiffs?

[28]Plaintiffs’ Submission on the First to Fourth Defendants’ Application, [9].

[29]Transcript of the hearing on 16 August 2022, 37, 41 (‘Transcript’).

The director defendants contend the plaintiffs have approached the exercise by impermissibly engaging in a form of ‘double discounting’ by firstly, reducing individual future cost items claimed to arrive at $3.75 million (representing a reduction of approximately 60%) and secondly, by applying a global discount, by reference to the likely treatment of costs on taxation, to arrive at the approximately $3 million figure proposed.[30] Citing Voxson Pty Ltd v Telstra Co Ltd (No 8) (‘Voxson’),[31] a decision to which I will return, the director defendants submit that only one discount metric may be applied and such discount is predominantly calculated by reference to a party–party recovery rate and the likely result on a taxation of costs, but may also account for other discount factors previously discussed.[32] They further submit that global reduction by a fixed percentage may be used as a rule of thumb to approximate the effect of the reductions that would otherwise be made to the actual cost of individual items. However, they say that such reduction is an alternative, and not a complement, to assessing what is recoverable on individual tasks.[33] The director defendants contended at the hearing that a global discount is not required because the party–party recovery rate applied in Mr Chapple’s affidavit material (60% recovery rate for solicitors’ fees and 90% for disbursements) is already conservative[34] and the relevant recovery rates subsume the global discount variable.[35] In any event, the director defendants’ material makes no mention of the application of any discount to account for the vicissitudes of litigation and the like.
[30]Amended submissions of the first to fourth defendants’ filed on 20 July 2022, [28]; Seventh Banton Affidavit, [86]; Transcript, 11–12.
[31][2017] FCA 1427 (‘Voxson’).
[32]Transcript, 9–10.
[33]First to Fourth Defendants’ Submissions, [29], citing Fiduciary Ltd v Morningstar Research Pty Ltd (2004) 208 ALR 564, 594 (Austin J) (‘Morningstar’).
[34]Transcript, 12.
[35]Ibid 10.

For their part, the plaintiffs do not accept their methodology involves any ‘double discounting’. Instead, according to Ms Banton, the ‘initial adjustment or discount … [was] made to reflect … [her] assessment of the total indemnity costs that, in [her] experience, [she] anticipate[d] that the defendants will not-unreasonably incur’. She says an adjusted assessment was made on the total future costs estimates provided by the director defendants and a standard party–party adjustment was then applied to discount the adjusted estimate. On a proper analysis, I do not believe the plaintiffs have in fact discounted the director defendants’ costs twice. For reasons that I will elaborate upon shortly, it is appropriate for both the plaintiffs and the Court to scrutinise, and make adjustments to, the director defendants’ actual estimated costs using different assumptions or methodologies before applying a recovery rate to compute a party–party amount.

At the hearing, the plaintiffs’ counsel stated Ms Banton had not also applied a global discount to the party–party position, including by reference to the exigencies of litigation.[36] Despite this, the plaintiffs’ written submissions seem to suggest that it would nevertheless be appropriate for the Court to apply a global discount to the costs claimed.[37] When pressed on this apparent inconsistency at the hearing, the plaintiffs’ counsel clarified it was open to the Court to consider the director defendants’ figures and then apply a global discount, which would yield a number similar to the estimate put forward by the plaintiffs.[38]
[36]Transcript, 41.
[37]Plaintiffs’ Submission on the First to Fourth Defendants’ Application, [5]–[6].
[38]Transcript, 43–4.

Application of global discount

It follows that an important issue arising in the present application is the manner in which a global discount may be applied in assessing a defendant’s estimated costs in a security for costs application. Specifically, can a global discount be applied:

(a) in addition to an evidentiary assessment of what may be recoverable in respect of individual items or categories of work within the costs estimate?; or

(b) as an alternative to that evidentiary assessment?

To explore that issue, a closer analysis of the applicable authorities is necessary.

In Norcast S.ár.L v Bradken Ltd (‘Norcast’),[39] which concerned a security for costs application made in a misleading and deceptive conduct case, various issues arose for determination. The first was whether it was appropriate to commence the quantification of security on the basis of an estimate of actual or indemnity costs, discounted by some factor, or whether a calculation of party–party costs was the appropriate starting point. Justice Gordon held that commencing with either party–party costs or discounted actual or indemnity costs was not critical, provided the end result was the same, namely a reasonable estimate of the respondent’s costs that the applicant, if unsuccessful at trial, would be ordered to pay.[40]
[39][2012] FCA 765.
[40]Ibid [19].

Assuming actual or indemnity costs were permissible as a starting point, the second issue in Norcast involved identifying the appropriate discount to be applied. Justice Gordon held that where actual or indemnity costs are adopted as the basis for estimating costs, the discount factor becomes central.[41] The discount must vary to ensure that the estimate of actual or indemnity costs is appropriately reduced so as to bear some relationship to the party–party costs that would be recoverable on taxation.[42] Her Honour expressed the proposition bluntly as: ‘the more expensive the lawyers, the larger the discount’.[43] Both parties had embraced the application of the so-called ‘two-thirds rule’ discount, albeit in different ways. The respondents (the parties seeking security) used two-thirds as their overall discount factor, whereas the applicant submitted that, whatever figure was arrived at as the appropriate estimate of party–party costs, such figure must be further discounted by two-thirds. After reviewing the relevant authorities on the ‘two-thirds rule’, Gordon J confirmed the rule may be applied (either as to two-thirds or a different rate) where there are factors suggesting the quantum of security ought to be ‘further discounted’ in that way.[44] Whilst her Honour considered it appropriate to reduce the amount of security, that result may be achieved either by restricting the steps in the proceeding included in the security sum or by applying a discount (two-thirds or otherwise), but not both.[45] Her Honour determined not to apply the ‘two-thirds rule’ on the basis that the security would include only those costs incurred up to and including the preparation of evidence, with liberty given to the respondent to seek additional security.[46] Justice Gordon applied a 50% discount to both the respondents’ actual past costs, which had been incurred; and the mid-point estimate of the respondents’ actual costs up to and including the preparation of evidence.
[41]Ibid [23].
[42]Ibid.
[43]Ibid.
[44]Ibid [28]. Such factors include those previously referred to in connection with the application of a global discount.
[45]Ibid [32].
[46]Ibid [33].

The decision in Norcast therefore illustrates the application of a global discount alongside an overall assessment of quantum of costs claimed by a defendant and the categories of work and stages of the litigation to which those costs relate.

In Pathway Investments Pty Ltd v National Australia Bank Ltd,[47] Davies J reduced the claimed security for future estimated party–party costs by 50% and 20% for past costs by reason of uncertainty about the precision of the estimates given; the margin of difference between the estimates of the costs assessors engaged by the parties where no significant error in the reasoning process was demonstrated; incomplete information; questions about the reliability of some assumptions made by the costs assessors; and the possibility of settlement at a mediation held prior to final preparation for trial.[48]
[47][2012] VSC 97.
[48]Ibid [55].

In Voxson,[49] a case relied on by the director defendants, Perram J also applied a global discount of 50% to the amount of security sought (which concerned past accrued costs and future costs) because ‘on any view, [the respondent’s] costs [were] at the high end’, which his Honour characterised as constituting a ‘Rolls-Royce’ defence.[50] His Honour considered that determining the amount of the discount was partly driven by the ‘feel’ of the case and noted that the respondent’s ‘deluxe approach’ to the litigation would be reflected in a significantly decreased rate of recovery on taxation.[51] I do not accept the director defendants’ submission that Voxson stands for the proposition that only one discount may be applied after estimating the respondent’s solicitor–client costs. His Honour did not suggest the blanket application of any such rule. Instead, his Honour considered it a ‘permissible’ approach to apply a discount to the estimate of solicitor–client costs,[52] rather than apply a granular reduction of costs with different discounts applicable to different phases of the case. In fact, before applying a 50% discount in respect of future costs, his Honour first reduced the trial estimate and therefore the total estimate of future costs against which the global discount was applied.[53] In other words, two distinct discounts were applied in respect of the total cost estimate.
[49][2017] FCA 1427 (‘Voxson’).
[50]Ibid [16].
[51]Ibid.
[52]Ibid [18].
[53]Ibid [18]–[19].

Comparable methodology was employed by Austin J in Fiduciary Ltd v Morningstar Research Pty Ltd (‘Morningstar’),[54] where his Honour reduced the estimates put forward in a security for costs application by 15% to account for the vicissitudes of litigation.[55] Having decided to apply this general global reduction, his Honour considered it unfair to look specifically at identified areas and revise the time estimates for them in addition to applying the overall percentage reduction. However, there were certain tasks relating to discovery and attendance at hearings that his Honour either excluded entirely or significantly adjusted before applying the global discount.[56] Although the director defendants cited Morningstar for the argument that a global discount by a fixed percentage may be an alternative to, and not a complementary way of, assessing what is recoverable for individual tasks, the case does not stand for such a broad proposition. In fact, it illustrates a far more nuanced approach.
[54](2004) 208 ALR 564.
[55]Ibid 594.
[56]Ibid.

In the case of Oswal v Australia and New Zealand Banking Group Ltd (Security for Costs – Stage 2)[57] (‘Oswal’), Sifris J (as his Honour then was) assessed the appropriate amounts of security for costs claimed by multiple parties. Certain defendants sought security of $5.1–$5.3 million for past costs and future disbursements, up to the first day of trial, which his Honour ultimately assessed at $3.5 million. Other parties claimed security in the sum of approximately $802,000, $674,000, and $590,000 for future disbursements up to and including the first day of trial, which his Honour reduced to $400,000, $500,000, and $86,000, respectively. His Honour’s methodology involved a broad brush approach to arrive at a reasonable estimate of the applicants’ costs, which the plaintiffs would be ordered to pay if they were unsuccessful at trial. As regards the past costs claimed, his Honour commenced the process by considering the solicitor–client costs actually billed and the evidentiary foundation and level of detail provided.[58] Reductions were made, including in respect of the period over which the past costs were claimed and the number of practitioners recording billable hours, before applying a further global discount of 25% to the already reduced sum.[59] Significant discounts were applied to past and future disbursements, including the number of counsel retained and time for preparation, to arrive at figures that were reasonable and recoverable.[60] The future disbursements claimed by the other parties were reduced on a similar basis.
[57][2016] VSC 119 (‘Oswal’).
[58]Ibid [26].
[59]Ibid [29]–[31].
[60]Ibid [34]–[35], [38].

Similarly, in Bodycorp Repairers Pty Ltd v GDG Legal Pty Ltd,[61] Matthews JR (as her Honour then was) made an assessment of the defendants’ future costs by reference to the appropriateness of the items and amounts claimed. The Judicial Registrar noted it is often the case that security is ordered for the period up to and including a mediation, with it then being open to the defendants to seek further security for the balance of the proceeding if it has not been resolved at mediation.[62] Judicial Registrar Matthews reduced certain items by reference to whether the estimates were reasonable, excessive or duplicative and then, applied a further discount of 15% to the already reduced figures to account for other factors,[63] including likely further reductions on taxation. Judicial Registrar Matthews’ approach was not disturbed on appeal.[64]
[61][2017] VSC 200.
[62]Ibid [71], citing US Realty, [64].
[63]Ibid [84]–[85], referring to the factors set out in Farmitalia.
[64]Bodycorp Repairers Pty Ltd v GDG Legal Pty Ltd [2017] VSC 621 (J Forrest J); Bodycorp Repairers Pty Ltd v GDG Legal Pty Ltd [2018] VSCA 32 (Ferguson CJ, Whelan and McLeish JJA) (application for leave to appeal refused: at [40]).

More recently, in Les & Zelda Investments Pty Ltd v Whitehaven Coal Ltd[65] and Les & Zelda Investments Pty Ltd as Trustee for Les & Zelda Family Trust v WhitehavenCoal Ltd (No 2),[66] the New South Wales Supreme Court considered an argument that limited weight should be given to the assertion that the defendant was conducting a Rolls Royce defence in the context of that group proceeding. The Court observed that the defendant ought not be expected to conduct a defence on a shoestring budget given the amount at stake.[67] Of particular relevance was the complexity of the case.[68]
[65][2020] NSWSC 1091, [49] (Parker J) (‘Les & Zelda (No 1)’).
[66][2022] NSWSC 741, [19] (Ball J) (‘Les & Zelda (No 2)’).
[67]Les & Zelda (No 1), [49].
[68]Les & Zelda (No 2), [19].

It is therefore possible to distil from the above authorities the following principles concerning the proper application of a global discount when determining an adequate amount of security for a defendant’s costs:

(a) a global discount may be applied in addition to an evidentiary assessment of what may be recoverable in respect of individual items or categories of work within the costs estimate proffered by the applicant seeking security. In other words, the two approaches are not mutually exclusive;

(b) as a matter of discretion, both methods may be utilised in combination so that individual tasks are separately discounted after broadly having regard to the evidence at a more granular level, with a global discount being applied at the end of the exercise;

(c) depending on the extent of individual reductions applied on a category-by-category basis, the Court may determine, as a matter of fairness, to not also apply a global discount, apply a nominal global discount, or to only apply a global discount in respect of certain categories;

(d) conversely, if the global discount is significant, it may not be necessary to also undertake an evidentiary assessment and adjustment of certain work categories and items claimed;

(e) the global discount should be calibrated to ensure the costs estimate is appropriately reduced to bear some relationship to the party–party costs that would ultimately be recoverable on taxation;

(f) one of the factors that may justify a substantial discount on the amount of security sought is the margin of difference between the estimates obtained by the parties where there is no significant error in the reasoning process demonstrated;

(g) similarly, where the costs are claimed up to the commencement of trial, a substantial discount may be warranted to account for the prospect that the matter may well resolve at mediation or prior to the hearing of the matter;

(h) where the fees charged by the defendant’s lawyers are expensive, or where a deluxe defence is being run, a larger discount may be applied. At the same time, a defendant in complex litigation is not expected to run a defence on a shoestring budget; and

(i) whatever the approach taken in a particular case, the Court must arrive at a reasonable estimate of the defendant’s costs, which the plaintiff would, if unsuccessful at trial, be ordered to pay.

Preference of evidence

The director defendants submit that, insofar as the evidence of Mr Chapple differs from Ms Banton’s, the evidence of Mr Chapple should be preferred for various reasons. The first of which is the relative experience of Ms Banton compared to Mr Chapple.

In the Fifth Banton affidavit, Ms Banton deposes to her professional experience of over 19 years as a legal practitioner in restructuring, commercial litigation, and large representative legal proceedings, including complex class actions. By virtue of her familiarity with class actions, Ms Banton has gained experience in estimating the likely legal costs relative to the different stages of a piece of litigation. She notes that class actions require costs budgets to be provided to the lead plaintiffs and group members and costs are ultimately approved by the Court.

In the Fourth Chapple affidavit, Mr Chapple deposes he has practised law for over 40 years and has been a partner of Baker McKenzie’s dispute resolution group for approximately 33 years. Over the course of his career, he has been involved in significant litigation in various jurisdictions, including many large and complex commercial cases of a similar type to this proceeding, involving multiple parties, complex legal and factual issues, and claims worth hundreds of millions of dollars. For example, Mr Chapple has been involved in the three Arrium proceedings and the AECOM representative proceeding.

The director defendants say that Mr Chapple has extensive experience acting for defendants in matters similar to this proceeding and is well aware of the costs and tasks involved. That experience is contrasted to that of Ms Banton, whose experience is characterised as limited to acting as legal representative for plaintiffs. Further, in critiquing Mr Chapple’s reliance upon the Law Council’s data concerning class action settlements, Ms Banton herself states that ‘analogies from plaintiffs[’] costs in class actions’ to defendants’ costs have ‘little utility’.

The difference in experience between Mr Chapple and Ms Banton is said to be obvious when considering their respective estimates on the work categories the subject of the security application. For instance, having regard to the estimated costs of document review and discovery in this proceeding, the director defendants estimate their costs of this work to be $1,163,367, compared to the plaintiff’s estimate of $307,600.50. I will return to the evidence concerning the categories shortly.

There is no reason why, as a matter of principle or practicality, the Court should be obliged to prefer, on a wholesale basis, the evidence of one party over the other in an application of this kind. As previously noted, the Court is not bound by the evidence put forward. It must stand back, assess the evidence for itself and determine an amount of security that is just and reasonable in the circumstances. In doing so, the Court may prefer or adopt a particular party’s evidence and submissions, or it may analyse the evidence and arrive at a different conclusion to the position adopted by each party.

Both Mr Chapple and Ms Banton are experienced legal practitioners whom have each been involved in large and complex litigation. The fact that Ms Banton’s professional experience has been more directed towards acting for plaintiffs is not of significant moment. The Court is not comparing the plaintiffs’ costs with the director defendants’ costs. Instead, the Court is tasked with undertaking a reasonable estimate of the director defendants’ costs that the plaintiffs would be ordered to pay if they were ultimately unsuccessful in the litigation. I also note that Mr Chapple himself has observed there is nothing per se that makes the legal costs of acting for a claimant inherently higher than the legal costs of defending the same claim. Further, there is nothing so illogical or implausible in the plaintiffs’ methodology that suggests the evidence of Mr Chapple for the director defendants should be automatically preferred.

The second reason why the director defendants submit that the Court should prefer the evidence of Mr Chapple over that of Ms Banton is because Ms Banton is in an alleged position of conflict. The alleged conflict arises by virtue of the group costs order made on 3 May 2022, by which Banton Group will be responsible for providing any security that the Court may order[69] and in circumstances where the Banton Group is a wholly owned subsidiary of a company of which Ms Banton is sole shareholder.[70] Counsel for the director defendants conceded that the weight to be accorded to this issue was lessened by the fact that the parties have agreed security may be provided in the form of an ATE policy, although it may be assumed the premium payable for that policy would be affected by the quantum of security ordered.[71] There was no evidence adduced to support that submission, but there is a degree of logic to it. That said, given the parties have agreed on an ATE policy as a mode of any security ordered, I do not find the director defendants’ submission to be determinative in this respect. The fact remains that neither party elected to engage the services of an independent expert or costs assessor who might have undertaken a more objective costs estimate.

Relevance of group costs order to Court’s discretion

[69]See Supreme Court Act 1986 (Vic) s 33ZDA(2)(b) (‘Supreme Court Act’).

[70]Transcript, 13–14.

[71]Ibid 14.

The group costs order is also relied upon by the director defendants for the further reason that by virtue of that order, Banton Group is entitled to be paid 40% of any recovery to be shared equally with the funder. They submitted at the hearing that, because Banton Group and the funder stood to profit from the litigation, the Court should consider that matter in the exercise of its discretion to fix an appropriate amount of security.[72] In particular, the director defendants submitted that this profit element is relevant to any discount the Court may apply.[73] Lastly, they made oral submissions that, to the extent the plaintiffs propose adjustments to the director defendants’ actual costs on the basis they are excessive or reflect a deluxe defence, such adjustments were inapplicable because Banton Group and the funder stand to ultimately benefit from the plaintiffs’ claim.[74] Instead, the security amount sought should be regarded as part of the expenses of litigation for those invested in it.[75]
[72]Ibid 13–15.
[73]Ibid 15.
[74]Ibid 16.
[75]Ibid 15.

I am not persuaded by these arguments. Simply because Banton Group and the funder stand to commercially benefit from this litigation, it does not logically follow that the Court should refrain from applying the same level of scrutiny to the costs estimated by the director defendants as it would in other complex litigation that does not feature a group costs order.

Further, I agree with the submission made by the plaintiffs at the hearing[76] that the legislative regime concerning group costs orders in s 33ZDA of the Supreme Court Act specifically contemplates the law firm that represents a plaintiff and group members being awarded a percentage of the amount of any award or settlement that may be recovered in the proceeding.[77] The regime simultaneously makes clear that the law firm is liable to pay any adverse costs order in favour of the defendant[78] and must give any security for the costs of the defendant in the proceeding that the Court may order the plaintiff to give.[79] In other words, the circumstances highlighted by the director defendants are inherent features of the group costs order regime and are not peculiar to this case.
[76]Ibid 76.
[77]Supreme Court Act, s 33ZDA(1)(a).
[78]Ibid s 33ZDA(2)(a).
[79]Ibid s 33ZDA(2)(b).

Whilst the arguments advanced by the director defendants concerning the group costs order may be relevant to the exercise of the Court’s discretion to order security for costs, as I have already explained, the parties were no longer in dispute about the Court’s discretion to order security by the time the application came on for hearing. But, it is difficult to see how the prospect of Banton Group and the funder profiting from the litigation informs the Court’s task of determining an amount of security that gives the director defendants real protection in relation to their costs in the event the plaintiffs’ claim fails.

Relevance of ‘reality checks’ to director defendants’ estimates

As previously noted, the director defendants refer to the three Arrium proceedings, the AECOM representative proceeding, and the similar proceedings contained in the Law Council’s report as a means of conducting ‘reality checks’ on the total actual costs that have been estimated by the director defendants. This material, whilst interesting, is not determinative. Each application for security must be decided on its own facts, having regard to what is just and reasonable.

Whilst the three Arrium proceedings relate to the same company and broadly the same underlying facts, a number of distinguishing aspects mean those proceedings do not necessarily stand as comparators for assessing the quantum of security in this case. First, and self-evidently, they concern three proceedings and not a single proceeding. It is not unreasonable to assume that, depending on the particular facts and circumstances, the costs of defending three proceedings will exceed the costs of defending a single proceeding. Secondly, although Mr Chapple’s evidence is that the ‘vast’ majority of the $10.3 million in costs were ‘common costs across at least two of, and usually all of’, the three Arrium proceedings, plainly not all of those costs were common costs. Further, as pointed out by the plaintiffs, because the director defendants have retained the same lawyers who acted for the defendants in the three Arrium proceedings, there is the potential for efficiencies to be realised in the work undertaken in this proceeding and consequentially, lower costs overall. Mr Chapple accepts this as a matter of principle but says he has already taken those efficiencies into account in compiling his estimates of the time needed to perform particular tasks. Whilst the extent of those efficiencies cannot be known with accuracy and should not be overstated, I consider that further efficiencies may exist, beyond those already built into Mr Chapple’s calculations.

There is also some force to the plaintiffs’ submission that the director defendants have placed undue reliance on the average approved applicant legal costs of $7.85 million across the similar proceedings compiled by the Law Council as an indicator of, or comparator for, the costs claimed by way of security here. The costs referred to by the Law Council range from $950,000 to $31 million, with significant divergence across the upper and lower bounds of that range. Adopting an average of $7.85 million seems of limited utility in the absence of a standard deviation to measure the amount of variability in the dataset. In fact, a review of the Law Council data suggests that in only a few of the similar proceedings were costs awarded to the plaintiffs for an amount close to the average referred to by the director defendants.

As Mr Chapple quite rightly points out, much of the variation of costs in the Law Council data may be due to the relative complexity and length of proceedings and the fact they settled at different stages. The uncertainty over whether and when a case may settle prior to trial underscores why it is appropriate to adopt a conservative approach, when balancing the risks and burdens between the parties, to arrive at an appropriate amount of security.

I turn then to the specific categories of costs contained within the director defendants’ security for costs application. In doing so, I make reference to the figures set out in the director defendants’ aide memoire and the respective evidence of the parties.

Review of categories of costs claimed
Approach to be adopted

In assessing each of the costs categories identified by the director defendants, I have had regard to the evidence and submissions relied on by each of the parties and the aide memoire prepared by the director defendants, which seeks to summarise that material and the difference between the parties in respect of each costs category. The aide memoire identifies the following categories of costs: expert fees; lay evidence; document review and discovery; cost of trial; trial preparation; past costs; correspondence and conferences not otherwise provided for; other disbursements; case management hearings and interlocutory applications; and mediation. A number of those categories incorporate separate components for solicitors’ fees and counsels’ fees. The categories in the aide memoire go towards the headline figures referred to in Table 1 set out earlier in these reasons.[80] For example, the total headline figure for solicitors’ costs in Table 1 draws on a number of separate cost categories articulated in the aide memoire, including: document review and discovery; cost of trial; trial preparation; and past costs.
[80]See [22] of these reasons.

I repeat my comment about the limitations and inconsistencies of the aide memoire and the iterative and voluminous nature of the director defendants’ evidence, which has rendered the underlying methodology confusing at times.[81] The director defendants have presented and adopted two sets of numbers in their material: detailed actual costs figures in respect of the various work categories and associated subcategories in addition to the party–party headline figures in respect of each work category (applying the established party–party recovery rates). However, they have not presented the party–party costs equivalent for each of the items and sub-categories comprising a particular work stream. In other words, the headline party–party figures for each work stream are not itemised, making the process of reviewing the party–party figures difficult because the real detail is found in the actual costs estimates themselves. In addition, unlike the other material relied upon by the director defendants, the aide memoire does not provide consolidated totals for solicitors’ costs and counsels’ fees. That information can, however, be discerned having regard to each individual work category set out in that document and the accompanying detailed footnotes.
[81]See [21] and n 12 of these reasons.

Doing the best I can with the material available, and in light of the matters and legal principles referred to above, I propose to approach the task of determining a sufficient amount for security for costs in the following way.

First, I will undertake a broad brush evidentiary assessment of the individual items and categories of work claimed by the director defendants on an actual costs basis. Having regard to the evidence and submissions of the parties, I will make any appropriate adjustments to the estimated actual costs where I do not accept the underlying assumptions or consider the estimated actual costs to be excessive. Following the layout of the aide memoire, I will consider the reasonableness of solicitors’ costs, counsels’ fees, and other disbursements for each of the work streams to which they relate.

Secondly, I will then adopt and apply the established party–party recovery rates proposed by the director defendants, which I consider to be appropriate and conservative in the circumstances.

Thirdly, I will then apply, to the extent necessary, a global discount to the director defendants’ costs to account for the various factors referred to in the case law, particularly the vicissitudes of litigation, to arrive at a reasonable estimate of the director defendants’ costs that the plaintiffs would be ordered to pay if they were unsuccessful at trial.

Having regard to the way this application has been argued, I anticipate the director defendants may consider my methodology to involve a ‘triple discount’. That is not the case. It is entirely appropriate for the Court to interrogate and scrutinise the inputs and assumptions comprising the director defendants’ estimated actual costs. If those inputs and assumptions cannot be sustained, the application of a party–party recovery rate will not cure the position. For example, if the estimated actual costs are grossly inflated, a party–party recovery rate would be applied against an unjustifiably high base position and the resulting party–party estimate would itself be flawed. It must also be remembered that the object of the exercise is not to provide the director defendants with a complete indemnity for their costs. Instead, the Court must arrive at a reasonable estimate of the defendants’ costs that the plaintiffs, if unsuccessful at trial, would be ordered to pay. In doing so, the Court is also permitted to apply a global discount to allow for the vicissitudes of litigation, including the chance of the matter settling or collapsing without coming to trial. As I have previously noted, the director defendants have made no allowance for these exigencies in their calculations.

I turn then to the various work categories in issue.

Expert fees

In relation to the fees of expert witnesses, the parties are significantly apart in their respective estimates. The director defendants estimate five experts will need to be called (an accounting expert, a capital raising due diligence expert, a reasonable director conduct expert, a market causation expert, and a loss expert) at a total actual cost of approximately $2,800,000 and a recovery on a party–party basis of $2,520,000 (based on a recovery rate of 90%). Mr Chapple’s estimate has been largely informed by his experience in the three Arrium proceedings.

By contrast, Ms Banton considers that Mr Chapple’s estimates of the experts’ fees are excessive, and instead opines that the total cost per expert ought be no more than $250,000, and only $150,000 for a loss expert, for a total cost of $1,150,000 for four experts and a party–party amount of $805,000 (based on a recovery rate of 70%). This leaves a gap between the parties on their party–party estimates of $1.715 million for this category of costs.

In my view, the estimate of expert fees put forward by the director defendants appears to be on the high end. Whilst I accept that given the nature of the allegations made in the proceeding, the accounting evidence is likely to be detailed and extensive, an estimate of $1 million for this work seems overly cautious. The sum of $800,000 is more appropriate. Similarly, a budget of $900,000 for the market causation expert should be adjusted down to $700,000. I will also slightly reduce the estimate of the capital raising expert fees from $500,000 to $375,000 because of inadequate detail of the scope of work expected to be undertaken by that expert and because such work may ultimately prove to be less complex than that expected by Mr Chapple in arriving at his estimate, which is based on the work required of similar experts in other proceedings he has been involved in, including the AECOM representative proceeding.

As foreshadowed, I consider the appropriate recovery rate for the expert fees to be 90%, as proposed by the director defendants. This affords a high rate of recovery, but allows for the possibility that some of the work billed by the experts may not be recoverable on a party–party basis. For example, the party–party recovery rate may be affected in the event experts briefed in the three Arrium proceedings are also briefed in this proceeding because they might be expected to have a degree of familiarity with the subject matter.

It follows that the amount for expert fees budgeted by the director defendants should be adjusted down from $2,800,000 to $2,275,000 on an actual costs basis. Applying a recovery rate of 90% results in an adjusted party–party figure of $2,047,500 for this category of costs.

Preparing and reviewing evidence

The critical points of difference between the parties in relation to the director defendants’ costs of preparing and reviewing evidence relate to the total amount of evidence required, the estimated time to be expended in preparing and reviewing that evidence by solicitors and counsel, and the seniority of the legal practitioners tasked with performing that work. The director defendants claim approximately $1,909,600 for actual costs in respect of the work associated with preparing and reviewing evidence. This includes the costs of preparing the director defendants’ lay and expert evidence, reviewing the plaintiffs’ lay evidence-in-chief and in-reply and expert evidence, and reviewing KPMG’s evidence. The figure is inclusive of both solicitors’ and counsels’ fees.[82] The established party–party recovery rates are then applied to the actual costs of solicitors’ and counsels’ fees for preparing and reviewing evidence. This yields a party–party amount of $772,800 for solicitors’ fees and $558,900 for counsels’ fees. The total party–party amount claimed by the director defendants in respect of the evidence is $1,332,240, although I calculate it to be $1,331,700.
[82]Approximately $1,288,000 of the $1,909,600 actual costs figure comprises solicitors’ fees and approximately $621,600 relates to counsels’ fees.

By contrast, the plaintiffs have only made provision for around $480,929 as not unreasonable indemnity costs of solicitors and counsel preparing and reviewing evidence (significantly adjusting down the actual costs claimed by the director defendants) and have arrived at a total party–party amount of $402,823.20 (assuming a recovery rate of 65% for solicitors’ costs and 90% for counsels’ fees). To understand the gap between the parties, it is necessary to look at the components of this work category in slightly greater detail.

The director defendants have allocated actual costs of $420,000 in solicitors’ fees and $185,000 in counsels’ fees for preparing lay evidence on the assumption of five lay witnesses, with time roughly divided between a partner or senior associate (approximately 75 hours in total) and a general associate or junior associate (approximately 75 hours in total). Conversely, the plaintiffs consider the reasonably recoverable costs for this work stream to be only $156,355. In doing so, Ms Banton has proceeded on a number of assumptions, including that no more than three hours be required for a partner or senior counsel for each affidavit because those persons should confine their work to providing comments and settling each of the documents; the allocation of time to a partner should constitute no more than 5% of the total reasonably recoverable solicitor hours; the time of senior associate should be capped at 20 hours per lay witness; the time of each lawyer and senior junior counsel be capped at 40 hours per lay witness; and, as a general rule, solicitors’ and counsels’ fees should be approximately $50,000 per affidavit in a complex matter such as this.

In my view, the allocation of work associated with preparing lay evidence is too heavily skewed in favour of the senior personnel within the firm. A greater proportion of this work (at least an additional 35 hours taken from partner and senior associate time) could be undertaken by a general associate, with a lower charge out rate ($458 plus GST compared to $780 plus GST for a partner or $603 plus GST for a senior associate). However, I consider the notion of imposing a cap of $50,000 per affidavit, or limiting partner time to 5% of the total reasonably recoverable solicitor hours, to be somewhat arbitrary. By contrast, the work associated with preparing lay evidence has been more efficiently allocated between senior and junior counsel for the director defendants. I consider that the actual solicitor costs of preparing lay evidence should be estimated at $400,000.

Similar observations can be made in relation to the costs associated with preparing the director defendants’ expert evidence. The director defendants have allocated actual costs of $430,000 in solicitors’ fees and $185,000 in counsels’ fees for preparing expert evidence, on the assumption of five expert reports with time again divided between a partner or senior associate (approximately 75 hours in total) and a general associate or junior associate (approximately 75 hours in total). Conversely, the plaintiffs consider the reasonably recoverable costs for this work stream to be only $147,805. Allowing for a greater delegation of this work, from the partner and senior associate (at least 45 hours) to a general associate, would appear to be a more efficient allocation of resources. This also recognises the different role of a party’s legal representatives with respect to preparation of an expert report compared to the preparation of lay affidavits. In many ways, the work associated with preparing expert reports is focused on locating and briefing each expert, ensuring the expert report is responsive to the questions that have been posed, and properly disclosing all facts, matters, and assumptions upon which the opinion of the expert is based. To the extent there is overlap between the experts engaged in the three Arrium proceedings and those who will be engaged in this proceeding, the scope of the work in this matter may be more confined. The actual solicitors’ costs for preparing expert evidence should be adjusted to $405,000.

I also consider that too much time has been budgeted towards reviewing the plaintiffs’ expert evidence by the director defendants’ solicitors (a total of 300 hours in respect of three anticipated expert reports, with 105 hours being spent by Mr Chapple as partner). The total amount claimed for this work by the director defendants’ solicitors is $173,000. By contrast, the three counsel engaged by the director defendants are each expected to spend six days (around 60 hours each or 180 hours in total) reviewing the plaintiffs’ expert evidence at a total cost of $88,000. The total solicitor hours should be adjusted down to 150 hours, with Mr Chapple, as partner, spending no more than 15 hours per report. Taking a broad brush approach, an amount of $90,000 for the actual solicitor costs of reviewing the plaintiffs’ expert evidence would not be unreasonable.

I consider the actual solicitors’ costs for reviewing the plaintiffs’ lay evidence in the sum of $33,000 to be appropriate.

In respect of the actual costs associated with reviewing KPMG’s evidence, the director defendants have estimated $232,000 in actual solicitors’ costs and $148,000 in counsels’ fees. On the basis there will be three lay witnesses and two experts called by KPMG, Mr Chapple has proceeded on an assumption that a similar amount of time will be required to review the evidence of each of KPMG’s lay and expert witnesses because the lay evidence will likely have significant technical content, including relevant audit and review processes. Whilst I consider that assumption to be valid, too much time has again been allocated to the work of solicitors in reviewing this material (a total of 400 hours in respect of five anticipated expert reports, with 150 hours being spent by Mr Chapple as partner). In circumstances where three counsel are projected to spend a total of 10 days each (around 100 hours each or 300 hours in total) on this material, the actual costs estimate for solicitors’ fees should be reduced. A more satisfactory estimate is 275 hours in total, with Mr Chapple, as partner, spending no more than 15 hours per report. I consider that the sum of $152,000 for the actual solicitors’ costs of reviewing KPMG’s evidence would not be unreasonable.

Having regard to the above adjustments, the director defendants’ estimated actual solicitors’ fees for this work of $1,288,000 should be reduced to $1,080,000. Applying a recovery rate of 60% results in an adjusted party–party figure of $648,000 for this category of costs. The total estimate of counsels’ actual fees for this work stream will remain as $621,600. I consider the amount of time spent by counsel and the rates that are charged to be reasonable for a matter of this complexity.[83] Further, I consider it appropriate that three counsel (senior counsel, a senior junior, and junior counsel) are retained to do this work. Applying an agreed recovery rate of 90% results in an adjusted party–party figure of $559,440. The total amount of the director defendants’ party–party costs for preparing and reviewing evidence is therefore $1,207,440.
[83]The director defendants’ senior counsel, Mr Marcus Pesman SC, is charging $7,000 per day, a senior junior barrister, Ms Tameika Spencer Bruce, is retained at $5,300 per day, and a junior barrister, Daniel Farinha, has a daily fee of $2,500.

Document review and discovery

In the Seventh Chapple affidavit, Mr Chapple elaborates upon the process of document review and discovery from the director defendants’ perspective. The work stream involves gathering documents that may be responsive to the proceeding using agreed discovery categories; undertaking appropriate culling and review of those documents, including by technology-assisted review; identifying relevant documents and those that should be provided to witnesses, including for cross-examination; undertaking secondary reviews and quality checks of documents that are potentially discoverable to make final determinations on whether they are responsive to discovery categories and/or should be included in witnessed bundles; manually applying redactions to documents, as appropriate; and considering the documents produced in the three Arrium proceedings, including over 241,000 documents produced by Arrium. Since providing his initial estimates in the Fourth Chapple affidavit, the lawyers acting for Arrium have confirmed that Arrium holds, and is prepared to provide to the director defendants for the purpose of this proceeding, 234,489 documents that are responsive to keywords reflecting agreed categories of discovery. This is more than the number of documents assumed to be held by Arrium in the Fourth Chapple affidavit. In addition, the director defendants’ own dataset increased during the course of their preparation for the security for costs application and the estimate for discovery was accordingly increased. The director defendants estimate they will incur solicitors’ fees in the actual sum of $1,938,945 for document review and discovery. Applying the proposed recovery rate of 60%, the director defendants claim $1,163,367 on a party–party basis.

Ms Banton, on the other hand, believes that the director defendants’ actual costs of document review and discovery would only be approximately $472,270 (which includes a small component of counsels’ fees) and their recoverable party–party costs would be $307,600. This is a significant gap. Whilst the parties apparently agree on the number of documents to be reviewed (388,801 documents) and the various steps involved in the entire document review and discovery process, there is disagreement about the seniority of the reviewers and the speed with which the review can take place, using the metric of the number of documents reviewed per hour. Mr Chapple has based his estimate upon an average cost of at least $5 per document, which he believes is realistic given there will inevitably be costs associated with liaising with Arrium’s lawyers concerning privilege claims and redaction of documents prior to production. Ms Banton, on the other hand, disputes the reasonableness of that assumption and opines that a paralegal or junior associate can review an average of 1,000 documents per day which, given Ms Banton’s estimate of 1,900 hours to review the dataset of 388,801, equates to approximately $1.14 per document. She also believes partner and junior counsel time would be around 10 hours to review key documents and they would not be substantively involved in discovery and that a senior associate would spend no more than 10% of the total time devoted to discovery. In Mr Chapple’s response to this analysis, he calculates that Ms Banton is suggesting an average review rate of 204 documents an hour or approximately 3.4 documents per minute, over the course of a day.

Given the complexities associated with dealing with different lawyers acting for Arrium, the potential for complex questions of privilege arising and the nature of the categories for discovery, I do not consider that Ms Banton’s alternative assumptions about the exercise are realistic. However, given the dataset of discoverable documents may well contain documents already catalogued and characterised as part of the three Arrium proceedings and members of the director defendants’ legal team may already have some general familiarity with parts of the dataset, there is the potential for some efficiencies in the document review and discovery process. I consider that an average cost of $4.50 per document is appropriate. This would result in $1,749,604.50 in actual solicitors’ costs and $1,049,763 on a party–party recovery rate of 60%.

Ms Banton states that, in her experience, no more than one hour is required for a partner to prepare and advise on each case management hearing. She also suggests that only one instructing solicitor (at a senior associate level) should attend each of the case management hearings; that both senior and senior junior counsel are generally not needed for case management or directions hearings; and that no more than one day should be allocated to junior counsel preparing for each case management or directions hearing.

In my view, given the complex nature of the proceeding and the intensive case management approach adopted by the Court in group proceedings, it is reasonable to assume that a partner at Baker McKenzie would need to expend some preparation time for each case management hearing. Such time will often be devoted to drafting correspondence to other parties, counsel and the Court, including in relation to proposed orders, and may require the preparation of affidavit evidence. Although much of that work can be undertaken by more junior Baker McKenzie lawyers, the input of a partner or senior associate will inevitably be required in relation to critical correspondence and the preparation of evidence. That said, 10 hours of partner or senior associate time seems too much. Seven hours of total preparation time by a partner or senior associate for each case management hearing would not be unreasonable. For efficiency reasons, the preparation time for each of the 10 case management hearings should be apportioned between a partner as to five hours and a senior associate as to two hours. This results in 30 hours of Mr Chapple’s time being removed from the estimates at a cost of $780 per hour ($23,400 in total). However, I do not consider that the director defendants should be restricted to only provisioning for one instructing solicitor. Instead, I agree with the formulation proposed by Mr Chapple in the Eighth Chapple affidavit, which involves allocating instructing solicitor responsibilities to four solicitors, with a combined total of four hours spent instructing at each case management hearing, including one and a half hours being spent by Mr Chapple. In my view, this affords a degree of flexibility and reflects the complexity and importance of the issues likely to be discussed and determined at the case management hearings. As regards time spent by counsel on the case management hearings, I agree with Ms Banton that both senior and senior junior counsel are not required for the same case management or directions hearings. I consider that it would be reasonable for senior counsel to be engaged for two days, and senior junior counsel for eight days. This results in a reduction of two days of time allocated to senior junior counsel, at a cost of $5,300 per day ($10,600 in total).

Mr Chapple estimates there will be five interlocutory applications, each with an assumed average length of one day, with a total of 20 hours’ preparation per application for a partner or senior associate (in respect of which he has apportioned 15 hours to himself as partner and five hours to a senior associate), and 10 hours for each of a general associate and junior associate. The work is said to involve preparing evidence to support the application, along with correspondence and consultation regarding proposed orders. Mr Chapple also estimates that over the course of the five interlocutory hearings, there will be an average of five hours instructing counsel spent by himself and a general associate, and one hour instructing for a senior and junior associate.

Ms Banton believes that given multiple counsel will also be briefed, no more than two hours should be spent by a partner settling each application and supporting material. She says that approximately two days should be allocated for a senior associate to prepare and attend each application and two days for a lawyer to prepare for each application. She believes that no more than two days should be allocated for senior counsel and one senior junior counsel to prepare and attend each interlocutory application.

In my opinion, the actual estimates given by the director defendants in respect of the interlocutory applications require some minor adjustments in terms of partner time. Preparation time spent by Mr Chapple for each of the interlocutory application hearings should be reduced from 15 to 10 hours. This results in 25 hours of Mr Chapple’s time being removed from the estimates, at a cost of $780 per hour ($19,500 in total). However, there is no reason to disturb Mr Chapple’s estimates of time spent instructing counsel at the interlocutory hearings as the allocation of instructing solicitors’ time amongst fee earners appears to be reasonable. In relation to counsels’ fees preparing for and appearing at the five interlocutory applications, I note that in the Eighth Chapple affidavit Mr Chapple re-calibrated those items on the basis that senior counsel would spend three days in respect of two of the applications; senior junior counsel would spend three days for five of the applications; and junior counsel would spend three days for three of the applications. Notwithstanding the complexity and importance of the interlocutory applications, I cannot see a justification for a senior counsel and senior junior counsel appearing together. I consider that the estimated allocation of counsels’ time should be adjusted so that senior junior counsel is engaged for three days for three of the applications and junior counsel is engaged for three days for all five applications. This results in a reduction of two days of time allocated to senior junior counsel, at a cost of $5,300 per day ($10,600 in total), but an increase of two days in time allocated to junior counsel, at a cost of $2,500 per day ($5,000 in total), and a net reduction in total counsels’ fees of $5,600 for the interlocutory applications.

Applying the adjustments to the actual figures provided by the director defendants for the case management hearings and interlocutory applications results in adjusted actual estimates of $116,600 and $130,500 for solicitors’ fees in respect of the case management and interlocutory hearings respectively ($247,100 in total). The adjusted actual estimates for counsels’ fees are $76,400 and $138,400 for the case management and interlocutory hearings respectively ($214,800 in total). Applying the established party–party recovery rates results in an adjusted party–party figure of $341,580 for this work stream.

Mediation

The last work category for consideration concerns the costs of the mediation in the litigation. In the Fourth Chapple affidavit, Mr Chapple estimates that the mediation will involve 30 hours’ preparation and attendances by a Baker McKenzie partner and one senior associate for two days, over approximately 20 hours, at an actual cost of $67,500 and $40,500 on a party–party estimate. No provision has been made for preparation and attendance by counsel at the mediation.

Ms Banton has excluded all of the mediation costs on the basis that it is apparently standard practice for all parties to bear their own costs of the mediation and to share the costs of the mediator and venue. However, I agree with Mr Chapple that in the case of Court-ordered mediations, a common form of order would either be that each party share the costs of the mediation at first instance, subject to any further order of the Court or that there be no order as to costs in respect of the mediation, in which case those costs would be costs in the proceeding. In the event the plaintiffs are unsuccessful in the litigation and are ordered to pay the director defendants’ costs on a party–party basis, it is reasonable to assume mediation costs incurred by the director defendants would be caught by such an order. That being the case, there is no reason to exclude those costs from a security sum. I also consider that the estimates made in respect of the mediation are appropriate given the complexity of the matter and extensive nature of a mediation process for such a proceeding.

Summary of amounts claimed and amounts allowed by Court

It is convenient to summarise, in tabular form, the amounts claimed by the director defendants as actual costs and party–party costs, along with the amounts allowed by the Court on a party–party basis in respect of each costs category.

Table 2 — Director defendants’ estimated actual and party–party costs by category compared to amounts allowed by Court on party–party basis

Costs category Director defendants’ estimated total actual costs (excluding GST) Director defendants’ total party–party / standard basis costs (excluding GST) claimed (rounded down)[86] Party–party / standard amount allowed by Court[87] (excluding GST)

Expert fees $2,800,000 $2,520,000 $2,047,500

Preparing and reviewing evidence $1,909,600 $1,332,240 $1,207,440

Document review and discovery $1,938,945 $1,163,367 $1,049,763

Trial $1,572,800 $1,103,520 $784,260

Trial preparation $1,020,400 $719,160 $653,880

Correspondence and conferences not otherwise provided for $300,000 $195,000 $135,000

Other disbursements $287,600 $258,840 $209,700

Case management hearings and directions hearings $521,000 $381,900 $341,580

Mediation $67,500 $40,500 $40,500

TOTAL future costs $10,417,845 $7,714,527 $6,469,623

PLUS past costs $678,852.36 $418,753.49 $341,826

TOTAL $11,096,697.36 $8,133,280.49,[88] but only $7,970,000 pressed $6,811,449
[86]Assuming 60% recovery on party–party basis for solicitors’ fees and 90% recovery for counsels’ fees and other disbursements.
[87]Applying a 60% recovery on party–party basis for solicitors’ fees and 90% recovery for counsels’ fees and other disbursements.
[88]As previously noted, the aide memoire gives the director defendants’ total party–party estimate as either $8,133,380.49 (as set out in the bottom of the second column) or $8,120,000 (as set out in n 19 of the document).

As a consequence of the adjustments made by the Court to the director defendants’ actual costs estimates, and after applying the relevant recovery rates of 60% for solicitors’ costs and 90% for counsels’ fees and other disbursements, the Court arrives at a total party–party figure of $6,811,449 (excluding GST). This is contrasted with the party–party amount of $7,970,000 sought by the director defendants.

I turn now to whether a global discount should be applied to the $6,811,449 figure, which has been allowed and, if so, for what amount.

Application of global discount

The following matters are relevant to the Courts’ discretion to apply a global discount to the party–party/standard amount of $6,811,449 allowed by the Court in respect of the different components, the subject of the security for costs application:

(a) the Court recognises the inherently uncertain nature of estimating costs that may be incurred in the proceeding and predicting the extent to which those costs are recoverable;

(b) because the director defendants have sought security for costs up to and including the trial of the proceeding, a global discount is warranted to account for the prospect that the matter may resolve at mediation or prior to the trial. Here, the director defendants have made no explicit allowance for the vicissitudes of litigation and have effectively sought full protection for their estimated party–party costs;

(c) there is a considerable margin of difference between the parties’ respective estimates of what constitutes an appropriate security sum (a gap of approximately $4.96 million), in circumstances where no significant error in the reasoning process employed by either party can be found. That is a factor justifying the application of a global discount;

(d) the director defendants have adopted conservative party–party recovery rates of 60% for solicitors’ fees and 90% for counsels’ fees and other disbursements, which the Court considers appropriate. That said, some of the director defendants’ actual costs estimates suggest a very high starting position before the established party–party recovery rates were applied;

(e) as previously discussed, there is some evidence of excessive costs in the director defendants’ figures, which have been adjusted by the Court. To some extent, this suggests a tendency of the director defendants towards running a deluxe defence. The Baker McKenzie defence team consists of at least seven solicitors who have been identified by Mr Chapple as working on the proceeding, along with paralegals. They comprise himself (as a partner), special counsel, two senior associates, two general associates, and a junior associate. The impression of a deluxe defence is reinforced by the sheer volume of material relied upon by the director defendants in the present application, which spans approximately 387 pages, including the Eighth Chapple affidavit, which is 99 pages in length (excluding formal parts) and which does not contain any exhibits. Whilst comprehensive in its detail, the material is inordinately long and over-engineered. To the extent the costs claimed are suggestive of a deluxe defence, this will be reflected in a significantly decreased rate of recovery at taxation. Nevertheless, I accept the director defendants cannot be expected to run their defence on a shoestring budget, particularly in a complex group proceeding such as this;

(f) even after making adjustments to the actual estimates given by the director defendants, the resulting amount of $6,811,449 still risks being too high so as to be oppressive. On the other hand, I consider that the party–party estimate given by the plaintiffs is so low that it fails to provide any real protection to the director defendants;

(g) it is appropriate to recognise the extent to which the Court has already adjusted the director defendants’ actual estimated costs on a category-by-category basis. The total difference between the director defendants’ actual estimated costs of $11,096,697.36 and the party–party costs permitted by the Court of $6,811,449 is $4,285,248.36. The difference between the party–party estimate of $7,970,000 put forward by the director defendants and the amount allowed by the Court is $1,158,551, which represents a total percentage deduction of around 14.5%; and

(h) the Court has already significantly reduced the past costs from an estimated actual amount of $678,852.36 to an allowed party–party figure of $341,826 (a reduction of around 49.6%).

In light of the above considerations, and balancing the risks and burdens between the parties, it is appropriate for the Court to apply a 17% global discount to the director defendants’ future costs. I will not apply the same discount to past costs given the extent of my adjustment to this category already. The total future costs component of the Court-permitted party–party figure of $6,811,449 is $6,469,623. Following the application of the 17% global discount (which amounts to $1,099,835.91), the revised figure for the future costs is $5,369,787 (rounded down). When combined with the amount of $341,826 allowed by the Court for past costs, the total security sum to be paid is $5,711,613 (excluding GST).

Tranches of security

Having determined the appropriate quantum of security to be $5,711,613, and noting the parties are in broad agreement that the requirement to pay security may be satisfied by the plaintiffs putting up an ATE policy, the final issue for consideration concerns the timing, amounts, and sequencing of the provision of that security by the plaintiffs.

The plaintiffs contend the provision of security upfront in a lump sum may be oppressive and that it should instead be provided in tranches, which reflect the major stages in the litigation, namely past costs; document review and discovery; the preparation of evidence; the preparation of expert evidence; trial preparation and trial. Further, the plaintiffs suggest that each tranche of security be paid within a certain number of days of the requirement to take a certain step in the proceeding. For example, one tranche be provided not less than 30 days before the director defendants be required to file and serve their lay evidence. The amounts allocated to each tranche by the plaintiffs have been formulated by, among other things, taking the plaintiffs’ own assessment of the director defendants’ allowable party–party costs, apportioning those costs across the key stages of the litigation, and allocating directions hearings and interlocutory applications to certain stages.

The director defendants accept that in the event the Court allows security to be given in tranches over time rather than a single lump sum, the tranches should be set by reference to when the actual costs are expected to be incurred by the director defendants, by reference to the key milestones in the proceeding. For example, a tranche of security would be provided within 14 days of the date of an order being made for the filing and service of evidence.

In summary, the director defendants seek the provision of security prior to undertaking the particular work relating to the relevant stage of the proceeding, whereas the plaintiffs offer security before the date for completion of each phase of the proceeding.

Rule 62.03 of the Rules provides that ‘[w]here an order is made requiring the plaintiff to give security for costs, security shall be given in the manner and at the time the Court directs.’

In DIF III Global Co-Investment Fund LP v BBLP LLC,[89] Hargrave J (as his Honour then was) considered the exercise of the Court’s broad discretion as to the form of security for costs, noting that the Court will usually apply the following principles:
[89][2016] VSC 401.

(a) the plaintiff is entitled to propose security in a form least disadvantageous to it;

(b) the plaintiff bears a ‘practical onus’ of establishing that the proposed security is adequate and does not impose an ‘unacceptable disadvantage’ on the defendant;

(c) to be adequate, the proposed security must satisfy the protective object of a security for costs order, namely, to provide a fund or asset against which a successful defendant can readily enforce an order for costs against the plaintiff; and

(d) based on these and any other relevant considerations, the Court will determine how justice is best served in the particular circumstances of the case.[90]

[90]Ibid [40].

In this case, there does not appear to be any unacceptable disadvantage to the director defendants if security is put up by the plaintiffs at a reasonable point in time prior to the completion of work pertaining to a particular stage of the litigation, as opposed to prior to the commencement of that work. It is important to ensure, however, that the time for the provision of security under a particular tranche is not so close to the date for completion of the relevant work that a significant portion of the work has already been performed before a fund is in place to enforce an adverse costs order.

Relevantly, the security for costs order made by consent on 12 August 2022 in favour of KPMG also gives the plaintiff the right to substitute any cash paid into Court with an ATE policy and requires that the relevant security be paid by way of six tranches, each within a specific number of days of KPMG being required to complete the necessary work under the Court’s timetable. The order does not require that security be provided before commencement of the necessary work. In my view, there is no reason in principle or practice why a security for costs order in favour of the director defendants should be structured any differently.

I will ask the parties to confer as to the precise timing and amounts of the tranches of security, having regard to:

(a) the security amounts I have arrived at for each of the relevant work streams (summarised in Table 2 above);

(b) the form and structure of the security for costs order already made in favour of KPMG;

(c) the need to ensure security is paid well prior to the date for the completion of the relevant work; and

(d) the need to proportionately allocate, across the relevant tranches, the security referrable to the mediation process and continuous work, such as the case management hearings, interlocutory applications, correspondence, and conferences.

Conclusion

Having regard to the matters set out in these reasons, it is just and reasonable in all the circumstances that the plaintiffs pay security for the director defendants’ costs in the amount of $5,711,613 (excluding GST).

The parties are directed to confer as to an appropriate form of order to give effect to these reasons, including in respect of the timing and amounts of the tranches of security and the costs of the application. In the event the parties are unable to reach agreement about those matters, the matter will be listed for a brief further hearing and the parties will be required to set out their respective positions in short written submissions.

SCHEDULE OF PARTIES

S ECI 2020 03281
BETWEEN:
ANTHONY BOGAN	First Plaintiff
MICHAEL THOMAS WALTON	Second Plaintiff
- v -
THE ESTATE OF PETER JOHN SMEDLEY, DECEASED	First Defendant
ANDREW GERARD ROBERTS	Second Defendant
PETER GRAEME NANKERVIS	Third Defendant
JEREMY CHARLES ROY MAYCOCK	Fourth Defendant
KPMG (A FIRM) (ABN 51 194 660 183)	Fifth Defendant

Category	Estimated total director defendants’ actual costs amount by general category (excluding GST)	Assumed percentage recovery in party–party taxation on standard basis	Estimated recovery of in party–party taxation on standard basis (excluding GST) (rounded down)
Solicitors’ fees	$5,929,157[15]	60%	$3,557,494.20 rounded down to $3,550,000[16]
Counsels’ fees	$1,825,095[17]	90%	$1,642,585.50 rounded down to $1,640,000[18]
Expert fees	$2,800,000[19]	90%	$2,520,000[20]
Other disbursements	$287,600[21]	90%	$258,840 rounded down to $258,000[22]
TOTAL future costs	$10,841,852[23]	$7,968,000
PLUS past costs	$678,852.36[24]	60% for solicitors fees and 90% for disbursements, including counsel fees	$418,753.49[25]
TOTAL	$11,520,704.36 estimated total actual costs	$8,386,753.49[26] estimated total party–party costs, but only $7,970,000 pressed

Costs category	Director defendants’ estimated total actual costs (excluding GST)	Director defendants’ total party–party / standard basis costs (excluding GST) claimed (rounded down)[86]	Party–party / standard amount allowed by Court[87] (excluding GST)
Expert fees	$2,800,000	$2,520,000	$2,047,500
Preparing and reviewing evidence	$1,909,600	$1,332,240	$1,207,440
Document review and discovery	$1,938,945	$1,163,367	$1,049,763
Trial	$1,572,800	$1,103,520	$784,260
Trial preparation	$1,020,400	$719,160	$653,880
Correspondence and conferences not otherwise provided for	$300,000	$195,000	$135,000
Other disbursements	$287,600	$258,840	$209,700
Case management hearings and directions hearings	$521,000	$381,900	$341,580
Mediation	$67,500	$40,500	$40,500
TOTAL future costs	$10,417,845	$7,714,527	$6,469,623
PLUS past costs	$678,852.36	$418,753.49	$341,826
TOTAL	$11,096,697.36	$8,133,280.49,[88] but only $7,970,000 pressed	$6,811,449

[2023] VSC 105

8 March 2023