Idoport Pty Ltd v National Australia Bank Ltd
[2007] NSWSC 23
•6 February 2007
CITATION: Idoport Pty Limited v National Australia Bank Limited & Ors, Idoport Pty Limited v Donald Robert Argus [2007] NSWSC 23 HEARING DATE(S): 20/11/06, 27/11/06. 28/11/06, 29/11/06, 04/12/06, 05/12/06, 06/12/06, 07/12/06, 13/12/06, 14/12/06
JUDGMENT DATE :
6 February 2007JURISDICTION: Equity Division
Commercial ListJUDGMENT OF: Einstein J DECISION: Subject to matters treated with in the reasons [and in particular the reduction of the gross sum by $7.95 million to cope with the OAMPS settlement] evidence before the Court justifies a gross sum costs award of $50,000,000 plus interest on the gross sum amount from 29 January 2002 CATCHWORDS: Costs - Application by National Australia Bank Ltd and associated defendants for gross sum costs order of $61,710,326.53 - Proceedings involved claims by Idoport Parties in the range of US $8.3 billion to US $29.3 billion which exceeded NAB's worth - Proceedings dismissed on 223rd day when over 15,000 pages of transcript had been taken and 301 statements from 168 witnesses had been filed - Principles underpinning the discretion to make gross sum costs order - Suggested luxurious behaviour by NAB Parties - Whether gross sum costs order appropriate to be made - Finding that gross sum can only be fixed broadly and the task is not to be undertaken in a mathematical or precise manner - Whether there should be a deduction from the gross sum of costs incurred by the NAB Parties between the stay and the dismissal of the proceedings - Extent to which it is appropriate for the Court to take into account the settlement reached between the NAB Parties and OAMPS Limited and its subsidiary Australian International Insurance Ltd - Discretion to order that interest be paid on any amount payable under an order for the payment of costs either from the date on which the costs concerned were paid or on such later date as the Court may order - Power to award interest on costs and principles applicable to exercise of relevant discretion LEGISLATION CITED: Civil Procedure Act 2005 (NSW)
Fair Trading Act 1987 (NSW)
Legal Profession Act 1987 (NSW)
Legal Profession Act 2004 (NSW)
Supreme Court Act 1970 (NSW)
Supreme Court Rules 1970 (NSW)
Trade Practices Act 1974 (Cth)
Uniform Civil Procedure Rules 2005 (NSW)CASES CITED: Auspine Ltd v Australian Newsprint Mills Ltd (1999) 93 FCR 1
Australian Development Corporation Pty Limited v White Constructions (ACT) Pty Limited (in Liquidation) & Ors [2002] NSWSC 280
Beach Petroleum NL & Claremont Petroleum NL v Johnson (1995) 57 FCR 119
Bountros v South Western Sydney Area Health Service [2005] NSWSC 564
Canvas Graphics Pty Ltd v Kodak (Australasia) Pty Ltd [1998] FCA 23; BC9800050
Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64
Cornwall v Rowan (No 4) [2006] SASC 111
Davies v Ku-ring-gai Municipal Council [2003] NSWSC 1010
Donohoe v Britz (No 2) (1904) 1 CLR 662
Farrow Mortgage Services Pty Ltd (in liquidation) v Trewhitt & Ors (unreported, Supreme Court of Victoria, 2 November 1995, Hansen J, BC 9500155)
Grogan v Thiess Contractors Pty Limited [2000] NSWSC 1101
Hadid v Lenfest Communications Inc [2000] FCA 628
Harris v Caladine (1991) 172 CLR 84
Harrison v Schipp (2002) 54 NSWLR 738
Hughes Brothers Pty Limited v The Trustees of the Roman Catholic Church for the Archdiocese of Sydney [1999] NSWSC 1051
Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 427
Kelly v Norris [2004] NSWCA 260
Leary v Leary [1987] 1 All ER 261; [1987] 1 WLR 72
Lolomania v Roads & Traffic Authority of New South Wales [2002] NSWSC 918
McWilliams Wines Pty Limited v Liaweena (NSW) Pty Limited (1993) 32 NSWLR 190
Murray v Shillingsworth [2006] NSWCA 367
Nicholas v The Queen (1998) 193 CLR 173
Nine Films and Television Pty Limited v Ninox Television Limited [2006] FCA 1046
Norris v Blake (1997) 41 NSWLR 49
Optus Networks Pty Limited v Leighton Contractors Pty Limited [2005] NSWSC 156
Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd (2003) 196 ALR 257
Roads & Traffic Authority v Cremona (No 3) (2005) 140 LGERA 420
R v Trade Practices Tribunal; Ex parte Tasmanian Breweries Pty Ltd (1970) 123 CLR 361
Sherborne Estate (No 2); Re; Vanvalen v Neaves [2005] NSWSC 1003
Smoothpool v Pickering [2001] SASC 131
Societe Anonyme Pecheries Ostendaises v Merchants’ Marine Insurance Company [1928] 1 KB 750]
Sony Entertainment (Australia) Ltd v Smith (2005) 215 ALR 788; [2005] FCA 228; BC200500963
Sparnon & Ors v Apand Pty Ltd& Ors [1998] FCA 164
Wentworth v Wentworth (unreported, Supreme Court of New South Wales Court of Appeal, 21 February 1996, Priestley, Clarke JJA and Grove AJA)PARTIES: Idoport Pty Limited (Plaintiff)
National Australia Bank Limited (Defendant)
Donald Robert Argus (Defendant)FILE NUMBER(S): SC 50113/98; 50026/99 COUNSEL: Mr L Foster SC, Mr A Paterson (Plaintiff)
Mr J Sackar QC, Mr J Halley, Ms K Williams (Defendants)SOLICITORS: Sarvaas Ciappara (Plaintiff)
Freehills (Defendants)
IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LISTEinstein J
Tuesday 6 February 2007
50113/98 Idoport Pty Limited v National Australia Bank Limited & Ors
50026/99 Idoport Pty Limited v Donald Robert Argus
JUDGMENT
1 The National Bank of Australia Limited [and a number of related companies and persons] were defendants to proceedings [50113 of 1998] brought in this Court by Idoport Pty Ltd. Mr Donald Robert Argus was the defendant in another set of proceedings [50026 of 1999] brought in this Court by Idoport.The applications before the Court
2 There are before the court amended notices of motion in which NAB seeks the following orders:
[the term NAB is adopted to refer to all of the defendants]
1 As to the whole of the costs ordered to be paid by the plaintiff to the defendants in accordance with:
2. The plaintiff pay to the defendants, pursuant to section 101(4) of the Civil Procedure Act 2005 (NSW) interest on the gross sum amount ordered by the court, such interest to:
(a) the orders made by the Court on 29 January 2002 in these proceedings; and
the plaintiff pay to the defendants, instead of assessed costs, the gross sum of $61,710,326.53 pursuant to section 98(4)(c) of the Civil Procedure Act 2005 (NSW).(b) the orders made by the Court on 14 September 2006 in these proceedings (the reserved costs application),
(a) commence to accrue from 29 January 2002;
(c) be calculated at the rate prescribed in Schedule 5 to the Uniform Civil Procedure Rules 2005 (NSW).(b) cease to accrue upon the date that costs the subject of the gross sum order is paid in full by the plaintiff to the defendants; and
3. The monies paid into Court by the plaintiff pursuant to order 1 of the orders made by the Court on 24 September 2001 be released to the National Australia Bank Limited pursuant to rule 41.3 of the Uniform Civil Procedure Rules 2005 (NSW) as part payment of the gross sum amount ordered by the Court pursuant to order 1 above.
[Order 3 is not opposed, the relevant amount having been paid into Court being $ 48,178]
The scale of the gross sum costs order application
3 NAB filed 868 pages of affidavits and tendered 33,572 pages of exhibits to be found in 110 folders in support of the application.
4 The first only of a number of affidavits made in support of the application by Mr Lovell a partner of Freehills, runs for nearly 400 pages [supported by 25,000 pages of exhibits] and comprises an extraordinarily detailed conspectus of the work carried out by the legal advisers of the NAB Parties, and the sundry parameters of the litigation.
5 The power of the Court to make a gross sum costs order was previously contained in Part 52A Rule 6(2)(c) of the Supreme Court Rules 1970 (NSW) which provided:The power of the Court to make a gross sum costs order
6 Section 98(4)(c) of the Civil Procedure Act 2005 (NSW) now provides:
“Where the Court orders that costs be paid to any person, the Court may, at any time prior to the costs being referred by the registrar for assessment, further order that, as to the whole or any part (specified in the order) of the costs, instead of assessed costs, that person shall be entitled to:
(c) a gross sum specified in the order instead of the assessed costs.”...
“(4) In particular, at any time before costs are referred for assessment, the court may make an order to the effect that the party to whom costs are to be paid is to be entitled to:
…
(c) A specified gross sum instead of assessed costs, or …”
7 No difference of substance is discernable as between the two sets of provisions.
The principles
9 For present purposes it seems convenient to commence with a recitation of the principles which inform the exercise of the discretion:8 As may be expected in what is likely the largest claim ever made in this country for a gross sum costs order, both parties took the court to the authorities which inform the principled exercise of the relevant discretion. Notwithstanding that some areas of difference arose concerning disparate parameters/appropriate emphases, in terms of the application of the appropriate principles, there were in the main no areas of serious disagreement.
i. the purpose of the rule is to avoid the expense, delay and aggravation involved in protracted litigation arising out of taxation: Beach Petroleum NL v Johnson (1995) 57 FCR 119, Von Doussa J page 265: [following Purchase J in Leary v Leary [1987] 1 All ER 261 who described the purpose of the rule allowing the fixing of a gross sum as “ the avoidance of expense, delay and aggravation involved in protracted litigation arising out of taxation ” (All ER page 265)];ii. the touchstone requires that the Court be confident that the approach taken to estimate costs is logical, fair and reasonable: Beach Petroleum at [16];
iii. the fairness parameter includes the Court having sufficient confidence in arriving at an appropriate sum on the materials available: Harrisonv Schipp (2002) 54 NSWLR 738, per Giles JA at para [22]; [following ( Wentworth v Wentworth (CA, 21 February 1996, unreported, per Clarke JA) and adopted in Sony Entertainment v Smith (2005) 215 ALR 788; [2005] FCA 228; BC200500963 at para [199];
v. the gross sum "can only be fixed broadly having regard to the information before the Court": Beach Petroleum at 124;iv. a gross sum assessment, by its very nature, does not envisage that a process similar to that involved in a traditional taxation or assessment of costs should take place: Harrisonv Schipp at para [22];
[In Hadid v Lenfest Communications Inc [2000] FCA 628 at [35] it was said that the evidence enabled fixing a gross sum "only if I apply a much broader brush than would be applied on taxation, but that ... is what the rule contemplates".]vii. In terms of the necessity for the approach taken to be logical, fair and reasonable, Von Doussa J in Beach Petroleum NL & Anor v Johnson& Ors(No 2) (1995) 57 FCR 119, put the matter as follows, at paras [16]:
vi. nevertheless the power to award a gross sum must be exercised judicially, and after giving the parties an adequate opportunity to make submissions on the matter: Leary v Leary [1987] 1 WLR 72 at 76, and Beach Petroleum NL v Johnson (No.2) (1995) 57 FCR 119 at 120”;
"On the one hand the Court must be astute to prevent prejudice to the respondents by overestimating the costs, and on the other hand must be astute not to cause an injustice to the successful party by an arbitrary “fail safe” discount on the cost estimates submitted to the Court: Leary v Leary at 265. …"
10 I accept as correct the submissions of the Idoport Parties in contending that the proper approach of the Court in the present environment should not be described as ‘arbitrary’. In short:A closer examination of the requirement to act judicially
ii. as explained by Purchas LJ in Leary v Leary [1987] 1 WLR 72 at 76:
i. although the principles set forth above are helpful in providing guidance to the Court as to the manner in which the discretion to make a gross sum costs order is to be exercised, ultimately whether an approach is logical, fair and reasonable falls to be determined by reference to the particular case before the Court;iii. the requirement that the power to award a gross sum should be exercised judicially does not mean that it must be exercised in any scientific or formulaic manner.; At the heart of the judicial function is the responsibility to weigh up competing factors and considerations, many of which might conflict, to reach a determination. Acting judicially carries with it an obligation to apply the rules of natural justice, to act impartially and to apply the law to the facts. As Kitto J explained in The Queen v Trade Practices Commission; Ex parte Tasmanian Breweries Pty Ltd (1970) 123 CLR 361 at 374:
“The unlimited discretion given by Ord. 62, r. 9 must be exercised in a judicial manner. How the powers are to be used varies widely from case to case and each case must be considered on its own merits. It is easy to envisage cases where a judge could be said to have acted unjudicially, e.g. by clutching a figure out of the air without having any indication as to the estimated costs; receiving such an estimate without the details being made available to the other side; or refusing a request to hear submissions on such a schedule if the party against whom the order is to be made makes, on reasonable grounds, an application to be heard.”;
iv. the scope and nature of judicial power was also addressed by Gaudron J in Harris v Caladine (1991) 172 CLR 84 at 150 in these terms:
“Thus a judicial power involves, as a general rule, a decision settling for the future, as between defined persons or classes of persons, a question as to the existence of a right or obligation so that an exercise of the power creates a new charter by reference to which that question is in the future to be decided as between those persons or classes of persons. In other words, the process to be followed must generally be an inquiry concerning the law as it is and the facts as they are, followed by an application of the law as determined to the facts as determined; and the end to be reached must be an act which, so long as it stands, entitles and obliges the persons between whom it intervenes, to observance of the rights and obligations that the application of law to facts has shown to exist.”;
“Judicial power is usually defined in terms of its subject matter, but it is a power that, for complete definition, requires description of its dominant and essential characteristic, namely, that it is exercised in accordance with that process which is referred to as ‘the judicial process’. Thus, in general terms, it is a power which cannot be exercised until the ‘tribunal which has power … is called upon to take action’ ( Huddart Parker ), which (subject to limited exceptions) proceeds by way of open and public inquiry, which involves the application of the rules of natural justice, and which is directed to ascertaining ‘the law as it is and the facts as they are, followed by an application of the law as determined to the facts as determined’: Tasmanian Breweries , per Kitto J.” (references omitted);
v. more recently, Gaudron J explained the nature of judicial power in Nicholas v The Queen in these terms:
“In my view, consistency with the essential character of a court and with the nature of judicial power necessitates that a court not be required or authorised to proceed in a manner that does not ensure equality before the law, impartiality and the appearance of impartiality, the right of a party to meet the case made against him or her, the independent determination of the matter in controversy by application of the law to facts determined in accordance with the rules and procedures which truly permit the facts to be ascertained and, in the case of criminal proceedings, the determination of guilt or innocence by means of a fair trial according to the law. It means, moreover, that a court cannot be required or authorised to proceed in any manner which involves an abuse of process, which would render its proceedings inefficacious, or which brings or tends to bring the administration of justice into disrepute.” (1998) 193 CLR 173 at [74].11 In the result it is not an arbitrary exercise of power for the Court to weigh up competing factors and make a determination, even if, as is often the case, the task cannot be undertaken in a mathematical or precise manner. As the Court of Appeal found in Norris v Blake(by his Tutor Porter) [No 2] (1997) 41 NSWLR 49 mathematical weightings of potential outcomes in loss of chance cases might be unsustainable and reliance rather should be placed on more intuitive methods to determine loss: (1997) 41 NSWLR 49 at 71-73. Similarly, the courts are frequently required to estimate damages that are not capable of precise quantification and require a degree of approximation and even guesswork. [ Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 83, 138 and 153; Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd (2003) 196 ALR 257 at [37]-[38]]
12 The Court is no stranger to intuitive determinations, or determinations made without absolute precision, arrived at by acting judicially: cf Murray v Shillingsworth [2006] NSWCA 367 per Santow JA at [10]. It is misconceived to suggest that such determinations or approaches are arbitrary.
13 In adopting a broad-brush approach to gross sum awards the Courts have invariably applied a discount to the amounts claimed and in many cases a substantial such discount. The authorities treating with discount amounts include:The application of a discount
i. In Canvas Graphics Pty Ltd v Kodak (Australasia) Pty Ltd [1998] 23 FCA; BC9800050, Canvas Graphics sought a gross sum costs order from Kodak. Canvas Graphics had prepared three draft bills, which were said to have been prepared on a party/party basis, which totalled $610,069, against which the sum of $18,325 had to be set off. Ultimately O’Loughlin J made gross sum costs orders totalling $233,325. The solicitor client bills had totalled $1,181,564.50. O’Loughlin J stated:
[The reduction applied to Canvas Graphics’ solicitor client bills was just over 80%.]“It would defeat the exercise of assessing a lump sum if one were to make an individual analysis of the many entries in this draft bill that justify criticism. However, examples can be given in order to show that there must be a substantial mark down ….”
iii. In Sony Entertainment v Smith (2005) 215 ALR 788; [2005] FCA 228; BC200500963, Jacobson J calculated a gross sum amount as follows:
ii. Sparnon v Apand Pty Ltd (Unreported, Federal Court of Australia, 4 March 1998, Von Doussa J; BC9800513) concerned a trial that occupied 45 sitting days and raised complex issues of fact and law (BC9800513 at 4). The actual bills rendered by the solicitors to Apand were $1,040,135.80. This sum included $466,400 for solicitors and $364,570 for counsel’s fees (BC9800513 at 5). Apand sought an order for gross sum costs on a party/party basis of $971,287 (BC9800513 at 7), a discount of 10%. Von Doussa J found that this was not a reasonable deduction (BC9800513 at 8). He allowed $252,592.21 for solicitor’s fees (55.5% of the solicitor client amount) and $162,505.44 for counsel’s fees and disbursements (44.5% of the solicitor client amount).
“196. As to the amount of a gross sum order, the applicants seek $302,997.89, being 60% of actual costs incurred ($504,996.47), as detailed in the affidavit of Mr Michael Williams, partner for Gilbert & Tobin, solicitors for the applicants. They submit that this represents an amount commensurate with taxed party/party costs. They claimed a further $6,000 of the $10,000 likely to be incurred on the damages hearing.
…[The reduction applied to the applicants’ actual costs was 40% of 60%, which equates to a reduction of 75%. (For some reason the amount of $205,998.58 ordered does not equate to a 75% reduction, although it is still a reduction of about 60%)]201. It seems to me appropriate to award 40% of the amount sought by the applicants, being $205,998.58.”
14 It is however trite to observe that this is an area in which it is generally imprudent to endeavour to extrapolate from the circumstances of one piece of litigation to those of another. Having said that it is certainly the case that a prudent approach is an informed approach. To that end the sundry authorities referred to by the parties certainly serve to inform the ultimate decision set out in these reasons [it being unnecessary to identify each of those authorities in these reasons].
The proceedings
16 Mason P made the following remarks about the scope of Idoport’s claims and the size of the damages claim in his judgment dismissing Idoport’s appeal from the first instance dismissal of the proceedings on 29 January 2002 [[2002] NSWCA 271 at [36], Stein and Giles JJA agreeing]:15 The many interlocutory judgments delivered during the course of the proceedings regularly included observations as to the issues, the regular occasions when the issues were expanded by the Idoport Parties, the scope of the litigation, the forensic approaches taken by the parties to aspects of the litigation and the significance to the parties of the litigation. Any reading of the interlocutory judgments can only testify to the number of ways in which the proceedings deviated from the norm of litigation in the Commercial List. No one could ever suggest that a claim against the NAB Parties in the range of US $8.3 billion to US $29.3 billion, a sum which exceeded NAB's worth, could not and should not have been taken extremely seriously by the NAB Parties.
17 In presenting the case put by the Idoport Parties when seeking special leave to appeal to the High Court of Australia from the dismissal of the proceedings, Mr Walker SC put the following submissions:
“I readily accept that the appellant lacked the ready access to the vast financial resources of the respondent bank, even taking account of the appellant’s litigation funders. But the immensity of its claims (which in terms of damages exceed by many times the total market capitalisation of the bank) takes the present litigation well outside the type of situation contemplated by Lord Woolf when he spoke of unequal litigants. The respondent bank and the respondent individuals who were also sued for comparable sums were fully entitled to defend themselves with all the means at their disposal subject to their own duties as litigants and the duties imposed upon their legal representatives to conduct the litigation in a proper manner.”18 Mr Foster SC, leading counsel for the Idoport Parties on the instant applications, cross-examined certain partners of Freehills, putting to them the proposition that in truth the proceedings were:
It is also true - and we would not seek to detract from this - that faced with such a claim, particularly one which the evidence suggested had already been funded on my client's side to the tune of over $10 million in costs, the Bank was plainly entitled, with all the energy and resources at its command and within the appropriate limits laid down by the court, to defend itself." [transcript 20 June 2003]
"[T]he only special leave point] is best demonstrated by what I will call the relative scale of the matter. It is true, as your Honours will have seen from the Court of Appeal reasons, in particular, by the exposition of the relevant background by the learned President, that the claims made by my client against the Bank were, on any view of it, remarkable for the ambition of their scale, some $29 billion.19 Whilst of course it is possible to thumbnail sketch the claims pursued in the proceedings in the fashion suggested by Mr Foster, at least some of the parameters of the litigation which clearly took it out of the norm and placed it in a class of its own included:
ii. essentially different only by reason of the scale of the damages claimed.
i. of a type not uncommonly litigated in the Commercial List including contractual claims, claims for breaches of fiduciary obligation and including associated causes of action including Trade Practices Act claims for misleading and deceptive conduct;
i. the ponderous and recurrent changes to the shape of the pleadings propounded by the Idoport Parties;ii. the consequential need for case management of the provision of particulars of the changed pleadings;
iii. the time taken during the opening stages of the proceedings [that is to say that period taken during the opening of the actual hearing as well as the time taken immediately thereafter] in innumerable forensic battles as to the particulars which had been and continued to be provided and as to the particulars which still required to be provided in the light of the proposals to seek leave to rely upon amended pleadings;
iv. the difficulties encountered in understanding precisely what was the subject matter of the proceedings in terms of the so-called ‘Ausmaq System’;
v. the commencement of the MLC proceedings sometime after the final hearing had begun;
vii. the necessity to tie the Idoport Parties down to their cases in terms of the overseas countries in relation to which they claimed to have lost the chance of worldwide commercialisation: the search being for the relevant markets.vi. the number of interlocutory applications both prior to and after the commencement of the final hearing;
20 In relation to the last of these matters the fact was that amongst the suite of issues tendered for litigation by the NAB Parties were issues which concerned the functionality of the Ausmaq system, its scalability and its potential for commercialisation in many countries. The contention of the NAB Parties was that the plaintiff's loss of chance case would fail for many reasons, including defective/missing functionality as well as an inability to achieve commercialisation of the business in many parts of the world.
22 Whilst it is difficult to do more than to provide an overview of the size, scope and complexity of the proceedings the following facts and factors listed [chronicled by the NAB Parties in their opening submissions on these applications] cannot be gainsaid:21 Numerous statements in support of and against these propositions had been taken from witnesses and, although the defendant's evidence had not been read, there had been many occasions on interlocutory motions before and during the hearing for the Court to be taken to the proposed issues [principally in order to give rulings as to whether or not to grant leave to rely upon particular statements in the context in which the parties were at issue as to whether the statements were within or without time and as to whether or not, and if so when, and precisely how, one or other of the parties was said to have acted unfairly in failing to comply with directions or in putting forward in reply, materials which the other party contended were in fact only masquerading as such, being in truth, materials put forward in chief].
i. The causes of action pleaded against the NAB Parties in the proceedings included breach of contract, procuring and inducing breach of contract, breach of fiduciary duty and threatened participation in such breaches, unjust enrichment and misleading or deceptive conduct in breach of the Trade Practices Act 1974 (Cth) and the Fair Trading Act 1987 (NSW).iii. The Fourth Further Amended Statement of Claim as filed on 25 October 2001 incorporated several significant additional points of claim, including:ii. The claims by Idoport and Market Holdings against the NAB Parties evolved over time and were substantially enlarged after the commencement of the final hearing. On 8 December 2000, Idoport and Market Holdings served on the NAB Parties a Notice of Motion seeking leave to file a Fourth Further Amended Statement of Claim and annexing the proposed amended document. Idoport and Market Holdings subsequently propounded at least six further versions of the proposed amended document, which grew in length from 168 pages to 232 pages before it was ultimately filed with leave on 25 October 2001.
a) additional alleged pre-contractual representations;b) additional alleged implied terms;
c) allegations that Bank Projects were services with equivalent or similar functionality to the AUSMAQ Service, either as it existed as at 6 November 1996 or as it should have been enhanced, modified and added to;
d) an allegation that NMG had acted as a competitor of the AUSMAQ Service;
e) an allegation that NMG had failed to take all reasonable steps to enhance, modify or add to the AUSMAQ Service;
f) an allegation that NMG had failed to act in good faith in exercising and performing its rights, powers and obligations under the Consulting Agreement and had failed to act in good faith to achieve the local and global commercialisation of the AUSMAQ Service;
g) an allegation that NAB had procured alleged breaches of the Consulting Agreement by NMG;
h) an allegation that NAB had failed to act in good faith to achieve the local and global commercialisation of the AUSMAQ Service;
i) additional alleged breaches of fiduciary duty;
k) additional allegations that the individual defendants had procured alleged breaches of contract and participated in alleged breaches of fiduciary duty.j) additional allegations of knowledge on the part of individual defendants; and
iv. The amendments introduced by the filing of the Fourth Further Amended Statement of Claim in the main proceedings were substantially mirrored in the Third Further Amended Statement of Claim filed in the Argus proceedings.v. The factual issues in dispute were wide ranging and included the functionality of the AUSMAQ Service, the capacity of the AUSMAQ Service to be developed and enhanced and to perform in financial markets around the world, and the functionality of the Bank Projects and whether they were equivalent or similar to the AUSMAQ Service.
vi. The statements filed by Idoport and Market Holdings included statements from expert witnesses relating to the capacity of the AUSMAQ Service to be developed and enhanced to perform in the United States, the United Kingdom and Europe, Hong Kong and Taiwan, in addition to Australia.
viii. The remedies sought against the NAB Parties included damages (including performance bonuses claimed to be payable in respect of the Bank Projects), compensation for alleged breaches of fiduciary duties, exemplary damages, a declaration of constructive trust over the assets, business and undertaking of each of the corporate defendants and the appointment of receivers and managers of assets of the corporate defendants.vii. Notwithstanding that the functionality, scope and capacity for enhancement of the AUSMAQ Service were core issues in the Proceedings, Idoport’s pleadings and evidence described the AUSMAQ Service and its proposed development and enhancement only in the most imprecise terms.
ix. On 10 May 2001, Withnell Hetherington, Idoport’s then solicitors, wrote to Freehills in the following terms:
“The nature of the claim is such that those damages are increasing with time. It is conceivable, to put the matter at its lowest, that the Bank’s shareholders’ funds may not be sufficient to pay out a verdict on the current damages claim, any increases from this point in time, and with the duration of the case, substantial additional amounts by way of interest. In these circumstances, Idoport would be placed in the position of having, as its other principal recourse, to seek a position ahead of the Bank’s depositors.”
x. The proceedings generated a large volume of discovered documents. Idoport filed seven lists of documents. The NAB Parties filed 29 lists of documents and discovered approximately 500 folders of paper documents, plus additional electronic documents. Discovery by the NAB Parties continued during the final hearing because discoverable documents continued to be created.
xi. The parties served more than 300 subpoenas.
xii. Prior to the commencement of the final hearing, the Court determined 20 interlocutory applications. Many of these involved substantial contested hearings, with both the plaintiffs and the NAB Parties filing affidavits and written submissions and, in some cases, issuing subpoenas and notices to produce documents relevant to the issues arising on the application.
xiii. Following the commencement of the final hearing, opening submissions took a total of approximately 57 hearing days.
xiv. The Court heard and determined 34 interlocutory applications after the commencement of the final hearing. These included:
xv. Idoport’s motion for leave to file a Fourth Further Amended Statement of Claim, which was heard in stages over a total of approximately 12 hearing days and resulted in the delivery of 3 interlocutory judgments by me.
xvi. Idoport’s further motion seeking leave to incorporate additional paragraphs in the Fourth Further Amended Statement of Claim after the Court had granted leave to file that document. This motion occupied two hearing days and resulted in a further two judgments delivered by me.
xvii. The NAB Parties’ motion for security for costs, in relation to which both parties filed affidavits and lengthy written submissions. The NAB Parties’ affidavits comprised approximately 150 pages, plus exhibits. The NAB Parties’ written submissions comprised approximately 34 pages and Idoport’s written submissions approximately 67 pages. The hearing of the motion occupied approximately 4½ hearing days.
xviii. The parties filed a total of 301 statements from 168 witnesses, 115 of which were filed after the commencement of the final hearing. Of these 301 statements, 109 were filed by Idoport and 192 were filed by the NAB Parties. The 109 statements filed by Idoport were from 40 witnesses. The 192 statements filed by the NAB Parties were from 128 witnesses and comprised in excess of 10,000 pages.
xix. At the time the proceedings were dismissed on 29 January 2002, the final hearing had entered its 223rd day and over 15,000 pages of transcript had been taken.
xxi. The proceedings were prepared for hearing within a compressed timeframe, their final hearing commencing only some 22 months after the commencement of the Proceedings. This meant that the NAB Parties were required to undertake several streams of work concurrently at any one time and this necessitated the organisation of the NAB Parties’ legal resources into teams with particular responsibilities relating to different aspects of the Proceedings.xx. The main proceedings and the Argus proceedings were case managed and heard together by me.
23 In summary, these proceedings were far removed from an ordinary commercial case. The issues were wide ranging and complex. A substantial volume of evidence was filed by both parties. The issues continued to enlarge well after the final hearing commenced. Idoport’s claim had the potential, if successful, to threaten the continuing business of Australia’s largest financial institution and, Idoport asserted, the savings of its deposit holders. It follows that the objective importance of the matter to the NAB Parties was very high. Mr Walker SC is shown to have been entirely correct in his submission to the High Court that faced with such a claim, the Bank was plainly entitled to defend itself with all the energy and resources at its command.
24 Presently that last proposition put by Mr Walker requires to be tested in an environment where the above described authorities focus upon the requisite approach to estimating costs being logical, fair and reasonable, the fairness parameter [as with each of the other parameters], importantly requiring that the Court have sufficient confidence in arriving at an appropriate gross sum order on the materials available if and only if it is in a position to make a gross sum assessment.
The desirability of the trial judge hearing the gross sum costs application
25 In Wentworth v Wentworth , unreported, NSWCA, 21 February 1996, BC9600215 at 35, Clarke JA [with whom Grove AJA agreed and with whom Priestley JA generally agreed] said that the exercise of the power to make a gross sum costs order "will almost universally be within the province of the trial judge".
27 One only example of parameters of the trial which received express recognition in the judgment delivered in late May 2001 [ Idoport v National Australia Bank [2001] NSWSC 427] is apparent from the following observations there made (23May 2001) at [5]:26 Clarke JA added that "in general it will be a trial judge, who has seen and heard the case unfold, who will exercise these powers". Although his Honour, in the context in which he was writing, was contrasting the position of the trial judge to the position of the Court of Appeal, his reasoning applies equally to the position of another judge of the Supreme Court sitting alone exercising original jurisdiction.
“… Achieving a measure of expedition in proceedings of the current scale is exceptionally difficult for obvious reasons. Achieving a measure of expedition is likely to be all the more difficult in circumstances in which the plaintiffs have elected to call Mr Maconochie as their last witness and to intersperse expert and lay witnesses, witnesses going to damages and witnesses going to liability, in the batting order. In contradistinction to the manner in which evidence is commonly adduced by first establishing relevant assumptions and then calling expert witnesses asked to make assumptions, the plaintiffs are proceeding to in many instances reverse this order. This is the plaintiffs’ forensic entitlement but clearly causes sundry case management difficulties. Whilst the Court has the power to interfere in the order of presentation by a party of a case, the Court has not up to this point in time been disposed to exercise that power. Such a step would be extreme in proceedings with the complexity of these proceedings and of course the defendants order of witnesses will (barring Court interference) generally be also a matter for them.”The essence of the propositions put by the Idoport Parties
28 Mr Foster took a number of approaches to defending the current applications.
30 Without attempting to be exhaustive, the essence of some of the particular propositions which Mr Foster advanced were as follows:29 His submission was that the approach of the NAB Parties to the instant applications could be described as "a top-down approach": this because the suggested starting point was the actual costs which had been incurred, the proposition being that there had been an attempt to foist upon the Idoport Parties, an onus to suggest which of the actual costs had been unreasonable.
The vantage point propositionsii. That the position was quite different when one viewed the NAB Parties forensic steps but now including the Idoport Parties in the frame of reference. This was because it was neither logical, fair nor reasonable for the Idoport Parties to be visited with the massive costs incurred by the NAB Parties in taking the steps outlined in i above.i. That whilst it was accepted that the NAB Parties [and Freehills as instructed by them] were perfectly entitled from their own vantage point to take every step to defend the proceedings in the way they discerned to be necessary, this was only the case when their position was considered without taking into account the co-relative position of the Idoport Parties.
"It was reasonable for NAB to take the case seriously but not that seriously " (transcript 25.3)][Mr Sackar paraphrased this Idoport proposition as follows:
The inadequate materials contentioniii. That the failure of the NAB Parties to discover sufficient of the relevant records of Freehills to enable the Idoport Parties to properly test whether or not the costs claimed could be seen to satisfy the logical, fair and reasonable parameter meant that on the available materials, the court could not have the confidence necessary in order to be in a position to arrive at an appropriate Gross Sum costs figure.
iv. That the NAB Parties were in effect attempting to use the gross sum costs application to make a claim for costs on a solicitor and client basis whereas the order had been for costs to be paid on a party/party basis.The solicitor client costs proposition
Standing back from the detail
32 There can be no issue with the proposition that a party which elects to travel a route of extravagance which cannot be justified by the need to properly defend the proceedings in hand will [in the absence of a costs order given on an 'indemnity' or so-called 'solicitor/client basis'] be disentitled from claiming all of the costs occasioned by the route travelled. That proposition was expressed over 100 years ago in the High Court:31 Even at this relatively early stage of these reasons it seems appropriate to stand back from the above propositions put by the Idoport Parties in order to reflect upon their substance or the lack thereof.
"It is a general rule that, as between party and party, the luxuries of litigation must be paid for by those who indulge in them , the necessaries only are to be paid for by the losing side." [emphasis added]: Donohoe v Britz (No 2) (1904) 1 CLR 662, per Barton J (at 666)33 The quintessentially important question presently raised in the unusual proceedings the subject of the instant applications is one of judgment and degree. Of course if there was evidence that by some "open cheque-book policy" put in place by the NAB Parties, the solicitors and experts were given carte blanche to travel around Sydney in stretch limousines and/or in interviewing overseas witnesses, to travel overseas in privately hired Lear Jets, this matter would be regarded as inappropriate within the context of the observations made in Donohoe v Britz.
35 Some extracts from the judgment on security for costs [2001] NSWSC 744 highlight some only of these unusual circumstances:34 However the challenge for the Court in the present litigation is never so stark. It involves a careful assessment not only of the gravity of the claims made but also of the forensic demands emanating from the unusual circumstances of the manner in which the proceedings were litigated.
[83] The nature of the proceedings and the approach taken by each of the parties to the proceedings from their commencement has always made it crystal clear that the duration of the final hearing would be very extended indeed. Whilst the precise ambit of the plaintiffs’ claims to damages may be said to have moved over time arguably from $20 billion to in excess of $50 billion, there was never any shadow of a doubt but that the defendants would defend the claim to the hilt and would do so in a careful and considered way using every resource available in that regard. It is not surprising that the defendants have retained one of Australia's largest law firms and built up a considerable legal team made up of many counsel and solicitors, no doubt backed by the National Australia Bank in every way possible. Previous judgments have described the defendants as mobilising massive legal resources in relation to the litigation. It is not surprising that the defendants would have carefully investigated any possible cross-claims and in due course determined to pursue the first cross-claim. It is not surprising that the defendants would have gone about investigation of the factual issues in the most meticulous fashion and would then have filed statements from their many witnesses. Mr Lovell’s evidence was that in round terms the defendants had paid between $20 million and $30 million to legal advisers between September 1998 and 3 October 2000 and a further $10 million to $15 million since 3 October 2000. Costs were running at between $1 million and $1½ million per month possibly excluding GST. In each case the defendants’ stance by way of defending the proceedings was a logical and reasonable approach when one takes into account the nature of the plaintiffs’ case and the way in which the case was pleaded, particularised and then sought to be proved by very extensive statements. I refer below to how it came about that the statements continued to be filed and served up to and after commencement of the final hearing, there being a number of reasons for this having taken place.[88] It is pertinent to add reference to another consideration of some significance. Whilst clearly the Court invited extended openings in order to assist the Court in following very precisely indeed what were the issues to be litigated (a course which to my mind proved and will in the long run prove to have been very beneficial and efficient) the fact is that the plaintiffs then took an exceptionally long time to propound the amendments in respect of which they then sought and obtained leave. Whilst it is true that the applications for leave to amend were strongly resisted, a considerable amount of time was expended on the interlocutory applications concerning the leave to amend. That hearing time only commenced after the plaintiffs had taken very real time in which to draft and on some occasions drafted on two or three times, the wording of the amendments which were ultimately pressed. The piecemeal/drip feed approach to whether or not to apply for leave to amend, the extended time taken in propounding the amendments and the time taken following argument in returning to the drawing board to redraft or modify the form of amended pleadings, represents another matter to be kept in mind as part of the matrix of adjectival information permissible to be taken into account.[84] In the result, although there is no doubt but that the plaintiffs’ sundry amendments to the statement of claim granted during the final hearing have added, and possibly in some real measure, to the amount of time which the final hearing will now take, the simple fact is that even without these amendments it would not have been reasonable to expect the parties to give any precise estimate of the final hearing time.
36 In truth the solicitor client costs proposition is presently misconceived. As earlier made plain, the court is not hearing the present application in a situation in which solicitor/client costs were awarded. The nature of the exercise is informed by the precise costs order which was in fact made and there is never a question of any different costs order having been made, nor of the proper approach to the present applications being anything otherwise than by reference to the costs orders which were made. But as earlier indicated, a much broader brush than would be applied on taxation is to be taken on the instant applications.
37 The vantage point propositions do require a close scrutiny to be given to any suggested excesses or ‘luxuriant behaviour’ by the NAB Parties. But what constitutes ‘an excess’ and what is ‘luxuriant behaviour’ can only be discerned when the whole of the relevant context is taken into account. That again amounts to a question of close judgment in the unusual circumstances which obtained through the litigation.
The operative landscape with respect to the inadequate materials contention
39 A detailed transcript was taken of the hearing on 2 June 2006 of this motion. No judgment was delivered as neither of the parties requested that reasons be given. It is strictly necessary to study the whole of the transcript in order to follow precisely what occurred. However a thumbnail sketch would relevantly include the following:38 In so far as the suggested shortcomings of discovery of the computerised time recording and disbursement recording records of Freehills are concerned, a special consideration arises with respect to the inadequate materials contention. I refer here to the amended notice of motion filed on 8 February 2006 by the Idoport Parties which had inter alia sought access to these materials.
i. from the NAB side of the equation, there were a number of difficulties apparent if the whole of the computerised records would have to be provided including a need to redact confidential information;ii. at a relatively early stage the Court put forward a suggestion that at least in the first instance , a sampling exercise be considered with the opportunity to the Idoport Parties to have leave to renew the application if additional materials were required once they had had an opportunity to consider the materials provided over the sampling periods [transcript 14 .32];
iii. the proposition was that the Court might determine what would be the sampling periods which should considerably limit the amount of time which would still be taken for the review and redacting operation;
iv. ultimately just such a proposition was acceded to by the parties [transcript 30.40];
v. Mr Foster when asked [prior to the Court giving a decision on the precise sampling periods] whether he sought for reasons to be given, reserved his position until the decision would be given [transcript 34.1];
vii. in due course the orders made were reduced to agreed short minutes of order [which although not expressly reserving leave to the Idoport Parties to renew/pursue like applications should they deem to do so after examining the sample materials provided to them, should certainly, in the light of the transcript [which several times reiterated the Court’s intent to reserve leave to renew parameters of the motion at a subsequent occasion], be read as not foreclosing any such further applications and as positively indicating an acceptance that such further applications may be made: cf transcript Exhibit D9 at 14.32, 20.16, 28.16, 28.30, 31.31, 34.56, 35.10].vi. after the decision was announced Mr Foster indicated that the Idoport Parties did not require reasons to be given;
40 There is no doubt in my mind but that the Idoport Parties were given to understand that following their having been given access to the particular records over the sample periods selected by the Court they would be entitled to renew/pursue their application for additional such periods. No such further application was ever made to the Court.
41 In those circumstances the proposition to the effect that the Idoport Parties had been denied access to these records which came forward from Mr Foster on the gross sum costs application seems to me to be a particularly shallow proposition. As a matter of the forensic tactics of the Idoport Parties, there is a real sense in which they seem to have determined to approbate and reprobate: they failed to further pursue in the courtroom a claim to have additional of the above described materials provided to them, and on the hearing of the gross sum costs application, they contend that an important consideration on the exercise of the discretion concerns the failure of the NAB Parties to furnish them computerised materials.
42 Nonetheless it is certainly the case that the general ‘inadequate materials contentions’ [which extend outside of the computerised records of Freehills], raise a question of judgment involving a close consideration of the type, nature and ambit of the precise materials which have been made available to the Idoport Parties on discovery. Hence notwithstanding the matters referred to in the previous paragraph, the convenient course adopted has been to deal with the inadequate materials contentions on their merits.
43 Both parties provided helpful aides to their final submissions in the form of a number of annexures. The convenient course is to mark the annexures for identification as follows:Annexures to the final submissions of the respective parties
ii. the annexures to the final submissions of the NAB Parties will be marked "MFI NAB Final".
i. the annexures to the final submissions of the Idoport Parties will be marked "MFI Idoport Final";The cross-examination of Mr Lovell
44 As one would expect this cross-examination sought [in relation to a number of integers of the NAB Parties’ preparation for and conduct of the hearing], to suggest that luxurious and unreasonable steps had been taken. Like propositions were put to Mr Johnson.
46 The cross-examination ranged far and wide and it is unnecessary to do more than [in non-exhaustive fashion], to note that Mr Foster sought to test matters such as:45 In one sense there was never an issue but that, in what one might call ‘absolute terms’, the charges made by Freehills to the NAB Parties were very very substantial: Mr Lovell readily conceded the correctness of this proposition [transcript 206.50]. The fact is self-evident.
i. whether the NAB Parties had simply provided an "open cheque-book policy" to its legal advisers;ii. which solicitors and counsel were present in the courtroom and when, and with what purpose, and with what overlap, if any;
iii. what teams of legal advisers had been utilised and with what overlap, if any;
iv. in what fashion statements had been prepared and by whom, and if by counsel [as opposed to a solicitor], with what justification;
v. what had been the approach to the assessment of costs with respect to the MLC proceedings and whether or not this exercise yielded an ability to extrapolate into what should be the reasonable costs of the proceedings the subject of the instant gross sum costs applications;
vi. the approach adopted to the retainer of Ms Castle and to the assumptions she had been asked to make;
viii. sundry anomalies thrown up by some of the records, as for example amounts charged for an item described as "Dummy Overtime".vii. the level of duplication involved where the same documents had to be circulated to many lawyers [and where the evidence established that 9.5 million copies had been generated];
The cross-examination of Mr Johnson48 Mr Foster asked close questions of Mr Johnson inter alia on the following areas:47 The cross-examination of Mr Johnson [who had produced a primary affidavit running for almost 250 pages generally dealing with the damages case in respect of which he had primary conduct [from March 2000 until late January 2002], also elicited a similar examination of many parameters of the approaches to preparation/presentation of those cases.
49 It is convenient to observe that in so far as the case put forward by the Idoport Parties sought to compare the amount spent by the respective parties on expert witnesses, the approach was to my mind misconceived. As the NAB Parties have contended:
i. his approach in putting forward the claim in relation to experts’ statements (generally working through the experts’ statements and identifying the lawyers who did the work and quantifying the actual costs paid to the experts) T221.49;ii. his supervisory role in respect of all expert witness statements, including his being personally responsible for the identification, selection and obtaining, briefing and instructing of every expert witness from whom a statement was filed after February 2000 T223.07-31;
iii. his approach in working out who to retain in general terms for assistance of an expert kind T223.45;
iv. cases in which he retained different individual experts to deal with different parts of the one expert statement T224.20;
vi. the direct retainer arrangement between Mr Turner of AT Kearney and NAB (from T231.35) including:v. the claims arising out of additional activities undertaken by the defendants in respect of the loss of opportunity case T225.39;
a) the basis on which the fees would be charged for this particular expert T233.21;c) amendments to the claim for the advisory work that was carried out in mid 1999 T236.27.b) whether it was his responsibility to ensure that the rates being charged were reasonable and the quantum of fees being rendered were in accordance with the retainer T233.36;
viii. the $3.18 million claimed in respect of Mr Turner’s statement T240.36
vii. his role in the preparation of Mr Turner’s initial statement T239.29;
b) the number of hours spent by Freehills lawyers T242.36.
a) the number of hours spent by Mr Turner on the work T242.18;
ix. the charges made by AT Kearney in respect of subsequent work T245.42;x. the rates which were charged by management consultants T247.29;
xi. whether he had any knowledge of whether the rates and bases of charging of any of the experts was reasonable T250.01
xiii. whether he had any knowledge of how it was they organised the people within those organisations to do the work T250.24.xii. whether he had any knowledge of the way in which the expert organisation structured itself to deliver the service was appropriate or reasonable T250.14
“There can be no meaningful comparison between the amount spent by the plaintiffs on expert witnesses and the amount spent by the NAB Parties for three reasons.First, much of the plaintiffs’ expert evidence was sought to be provided by Mr Maconochie himself. A substantial proportion of the NAB Parties’ expert evidence was directed at rebutting Mr Maconochie’s “expert evidence” concerning the potential exploitation of the AUSMAQ Service in Australia, New Zealand and the United States and Mr Maconochie’s “expert evidence” concerning the extent to which the “Bank Projects” could be construed as possessing equivalent and similar functionality to the AUSMAQ Service.
Rebutting such broad and hypothetical generalisations is not a straight forward task. It required, as the NAB Parties’ independent expert reports demonstrate, a thorough analysis of the structure of each market and the financial products offered in order to express an opinion about the prospects for success of the AUSMAQ Service. The task was made much more difficult because of the lack of any coherent, consistent or detailed explanation of the AUSMAQ Service. As Mr Johnson vividly explained in cross-examination:Second, the work undertaken by the plaintiffs’ expert witnesses on the one hand, and the NAB Parties’ expert witnesses on the other hand, was quite different. The plaintiffs’ experts and Mr Maconochie contended that the AUSMAQ Service was capable of being deployed successfully in many discrete product markets around the world. Very little specific information was provided as to how the commercialisations were to proceed and most of the plaintiffs’ experts did not do much more than identify a service that had recently emerged in their respective markets, conclude that the functionality of the AUSMAQ Service was broadly similar and express the opinion that if the AUSMAQ Service had been launched in that market before the successful service they had identified, the AUSMAQ Service would have had a first mover advantage and gained a very large proportion of the market.
“It was really what was the AUSMAQ Service and the changing nature of it. I mean during the case, when I came into the case, one of the things I tried to grapple with to the end of the case was what exactly was it. What was it that the plaintiffs said it was? It seemed to me it was like a blancmange, you poked it in one place and it came out in another place. I could never get a real grip on it and through the evidence of the plaintiffs gave it changed and therefore I found I had difficulty in explaining to experts what it was, precisely what they had to deal with.
…No, I think it was about what it was commercialised and what it could be enhanced into and all that type of thing, so it was - I found it amorphous. Yes, there’s a contract and you can read it, but I didn’t feel that I could deal with it with experts in that way, by saying here’s a simple definition of it, go away and produce a report.
I think it did. I think the plaintiff’s evidence in a sense assessing what the AUSMAQ Service was or could be changed and therefore one had to go back to experts, for example, and say, well, here’s a new – it is said to do the following things as well, or no, in dealing with equities, no, it was not an order routing service, it is going to be a share entitlement trust. What is a share entitlement trust? Well, go to this report and it says it is this, but if you look at these other documents it says its something else.”
…T hird, the amount spent by Idoport is not known. Idoport has not adduced any evidence of the amount. Mr Hetherington has given evidence about the amounts paid to experts from his trust account, but he is aware that Idoport made payments to experts directly. Mr Hetherington can do no more than speculate as to the amount of costs paid by Idoport to expert witnesses and in respect of professional costs and other disbursements.”
The complexity of the task and the amount of effort that had to be expended by the NAB Parties’ experts was on any view quite disproportionate to that required from the plaintiffs’ experts, particularly to the extent that the plaintiffs sought to rely upon Mr Maconochie’s “expert” evidence.Evidence given by the experts on the present application
50 Naturally the function of the Court is to consider expert evidence called in order to place itself into a position to determine the particular matter arising for determination in any set of proceedings. The Court is not bound by such evidence but is assisted by it where appropriate.
The evidence given by Ms Castle
51 Ms Castle, the managing director of DG Thompson, Legal Costs Assessors, a firm which specialises in the provision of legal costing services to the legal profession, was called by the NAB Parties to give expert evidence in answer to a number of specific questions posed for her in relation to the current application.
53 The consolidated report covered many areas including:52 Her consolidated 20 October 2006 report extends for 325 pages. She had been provided with the affidavits of Mr Lovell and Mr Johnson and with the exhibits to these affidavits.
i. the principles which govern and are applied by costs assessors in an assessment of costs on a party party basis;ii. the role typically undertaken by cost consultants in the course of an assessment of costs;
iii. an explanation of the material typically reviewed by cost consultants;
iv. an explanation of material typically presented to costs assessors undertaking an assessment and the distinguishing of such material, from material "otherwise made available";
v. an examination of the factors relevant to an assessment of the likely costs to be incurred in undertaking and completing an assessment;
vi. an examination of the likely costs involved in an assessment of the NAB Parties costs on a party party basis;
vii. an examination of what she termed “recognised methodologies” for calculating costs on a party party basis and an examination of whether or not these were appropriate in the context of the instant gross sum costs application;
ix. a section in which the Ausmaq Methodology is applied to the costs detailed in the affidavits of Mr Lovell and Mr Johnson to arrive at an appropriate sum for gross sum costs.viii. an explanation of the so-called "Ausmaq Methodology" developed for use in relation to the instant applications;
55 Her knowledge of what occurs in respect of costs assessments had come from:54 Notwithstanding the cross-examination directed at suggesting that Ms Castle had demonstrated a lack of relevant experience on the bases of which to be in a position to express all or part of the opinions [or many of the opinions] set out in her reports, the Court was satisfied that her training, study and experience had equipped her with the necessary specialised knowledge on the basis of which to express these opinions. A short judgment was delivered on the objections to her evidence. Notably she is the author of "Costs Guide New South Wales", a three volume loose-leaf publication on legal costs published by the Law Book Company.
i. her experience as client services manager and later as manager, and then as managing director of DG Thompson during which she had been extensively involved in:
a) advising clients (which included law firms, government authorities, industry bodies and corporations) as to legislation and case law concerning costs, information about products and services, marketing the firm to existing and new clients, developing new services;b) advising clients on strategies for costs recovery, estimates as to quantum of costs recoverable and the procedures to follow party/party or solicitor/client costs;
d) preparing and presenting seminars on legal costs for commercial seminar providers and for clients of the firm.c) preparing bills of costs, notices of objection, providing written advices and appearing at taxations of costs;
ii. her involvement in the provision of legal costing services in respect of thousands of commercial litigation matters, both in the direct provision of the service and in a supervisory capacity [such legal costing services including drawing bills of costs, drawing notices of objection, drawing responses to notices of objection, drafting correspondence with respect to costs and providing advice on matters including the correct interpretation and scope of costs orders; the likely quantum of recovery on an assessment of party/party costs; the strategy and quantum for settlement negotiations on party/party costs and the prospects for review and/or appeal];
iv. her experience since the commencement of the costs assessment system in July 1994 in having read many certificates of determination issued by costs assessors estimating that she would read approximately 40 per year [or in excess of 320 up to this point in time]. These certificates of determination indicated the amount of costs allowed by the costs assessor and also [since an amendment to the Legal Profession Act in 1998], the reasons for the allowance or disallowance of costs. They typically indicated such matters as the hourly rates are allowed, the type of work allowed or disallowed.iii. her experience with matters litigated in the Supreme Court concerning disputes of a commercial nature where costs incurred by the successful party were over $1,000,000 and estimated that she would deal with 10 to 12 such matters per year;
57 Having observed Ms Castle giving evidence over a number of days during which she was subjected to an extraordinarily searching cross-examination by a very capable senior counsel, I formed the distinct views that:56 As Ms Castle readily accepted, the simple fact is that she had never come across a situation similar to the set of proceedings here under consideration and could only approach the matter cognizant of the experts Code of Conduct to which she had signed and by reference to the experience which she had had over many years in the area. Indeed it is fair to say that on the many occasions when Mr Foster put to Ms Castle, the limitations suggested in relation to her experience when endeavouring to treat with topics concerning the instant litigation, it often seemed to me that it may well be the case that virtually no other person with a degree of specialised knowledge in the field, could or would be in any different position. And this because of the unusual parameters of the instant litigation.
58 Her particular evidence in being asked for example, as to the extent to which she had looked at the exhibits to Mr Lovell's affidavits included the following:
i. Ms Castle had been entirely open in exposing the work which she had done, the extent to which she had seen fit to adopt her own approaches to the exercise, the extent to which she had been in a sense tied to the instructions which she had been given and in answering the questions put to her cognizant of her duties under the Expert Code of Conduct;ii. Ms Castle had spent an enormous amount of time [ her estimate being in the order of 1000 hours] in preparing her reports and in examining, not only the affidavits of Mr Lovell and Mr Johnson, but in particular in seeing it as appropriate to work through the vast bulk of the innumerable exhibits to these affidavits in the way she described [that of Mr Lovell covering approximately 25,000 pages];
iv. Ms Castle on many many occasions paid great attention to the precise questions put to her in cross-examination so that her answers given were considered and reasoned.iii. Ms Castle had taken her duties as an expert very seriously indeed;
59 Ms Castle readily agreed that there was a very large degree of reliance on the affidavit materials (T313.42) and in fact her primary reliance was on the secondary material put together by Mr Lovell and Johnson in their affidavits except whether she could rely on the primary materials (T313.53-314.04). When it was not at all possible for her to verify matters from the primary documents, she decided to take the affidavit material at face value but not to the extent that she took the affidavit material at face value universally :
Mr Foster Q. How much time did you spend scanning this material?
“A. I looked very substantially at them. I felt obliged to do so because I was forming an opinion on the basis - in many cases on the basis of the documents. I formed my opinion in various ways but I felt obliged to undertake the exercise, and I did, of at least scanning - I had four CDs provided to me... There might have been a second. All that I was provided with I felt obliged to at least scan to get a flavour. I also scanned it because I was trying to develop a methodology in the early stages of preparing my report that relied only on primary documents and did not rely on what I considered to be non-primary documents, so that did not need to rely upon any interpretation provided for in the Lovell and Johnson affidavits, but the material I found was not sufficient. I talk about that in the report when I talk about the alternative methodologies….
A. I worked on the report for over 12 months, most weekends involved some work on it. I wasn't full-time on it. Many many many hours.
Q. Was this just a question of running the stuff across the screen and looking at it?
A. Well, it is different in respect of different documents. When I was trying to develop a methodology that didn't rely on the affidavit evidence, because I thought that would actually be a preferable approach if it could be done, I looked in detail at things like the pleadings, correspondence and I actually went down the path somewhat of trying to build up a methodology - I talk about it in my report - whereby you can look at the work product and you can say, for example, there's a letter from Freehills to Withnell Hetherington, it's six pages along and to try to construct around that the work that would have had to be done. In costing we do this sort of thing all the time. You see a work product on a file and you try to come to a conclusion as to the reasonable cost of producing that. So in respect of some of the documents I looked at them in a lot of detail. In respect of other documents, such as reports, it was a very quick scan.”
[transcript 312-313]
“Q. You took the affidavit material at face value universally, did you not?
A. No, I wouldn't say universally, because where I could, as I have just said, for example with the scope and complexity, those sorts of things, also with the changing nature of the pleadings, rather than just rely on that I looked and compared the pleadings and the way they changed to each other. I read some of the experts' reports. I read the correspondence in a fair amount of detail, because as I said I was trying to develop an alternative methodology. So I would say really what I did, there was a hierarchy. Where I could I relied upon the primary documents. Where I was unable to do so I relied on the affidavit material.”
[transcript 314]
60 Ms Castle agreed that two classes of primary record to which she had no regard generally, were the time records and the solicitors’ file notes (T314.47) nor did she ask for them (T314.53).
61 Ms Castle agreed that from the questions in the letter of instruction itself she was necessary restricted, in terms of the material to which she could have regard, to the contents of the affidavits set out and to the AUSMAQ assumptions and AUSMAQ guidelines (T312.08).
The methodologies examined and rejected by Ms Castle
63 Ms Castle had considered a number of methodologies for determination of the gross sum costs in the present proceedings. Her treatment with these methodologies was as follows:62 Before examining the methodologies considered by Ms Castle it is convenient to note her recognition that the calculation of party/party costs, whether in the context of a costs assessment or a gross sum award of costs, is not a science. As she readily accepted [in her Consolidated Report] the calculation of party/party costs using any of what she described as "the recognised methodologies" involved a combination of numeric calculations and qualitative judgments, the latter arrived at by simultaneously weighing up numerous relevant factors. She accepted that the calculation of party/party costs on any of the recognised methodologies could not be reduced to a formula and that this made the content and form of expert evidence given by a costs consultant different to the expert evidence given in some other areas of expertise. She also recognised that, to the extent that part of the so-called ‘Ausmaq Methodology’ was a qualitative one, different minds might, applying the same methodology and taking into account the same factors as she had, come to a different conclusion (Consolidated Report [206])
D.2.1 The Full Itemisation Methodology180 This involves itemisation of the work and the costs in a high degree of detail, usually by drawing a “bill of costs” that itemises work and cost.
181 One of the strengths of this methodology is said to be its high level of accuracy in reflecting the work done and the costs incurred for that work. In reality, drawing a bill of costs is a highly artificial process in most cases due to the lack of, or inaccuracy of, the records of exactly when, how and for what time any attendance took place. A methodology that relies upon computerised time records and internal file notes is artificial because computerised time records and internal file notes frequently do not capture exactly what happened, and the amount of time taken but, rather, provide some (or in some cases nil) record of that. Furthermore, computerised time records and internal files notes are often contradictory from a costing point of view (for example, the file note will indicate that a letter was drafted on a particular day, the computerised time record will record the following day for that letter). Because of these issues, the drawing of a bill of costs involves many subjective judgments, the result of which is an artificial representation of what actually occurred.
D.2.2 The Work Categories Methodology
182 This involves grouping the work into categories, such as instructions, pleadings, witness statements, conferences with counsel, hearing and the like. An amount of hours is ascribed to each category, based either on the knowledge of the solicitor with carriage of the matter or on time sheets or other material. The total number of hours in each category are multiplied by the hourly rates of the fee earners to produce a dollar sum for each category. The categories are then totalled to produce a lump sum.
183 The main advantages of this methodology are simplicity and that it does not require high levels of resources to apply it.
184 Disadvantages of this methodology include a lack of transparency and a lack of independent reference to objective criteria if it is based on the knowledge of the solicitor with carriage of the matter. I note that this methodology is frequently used to estimate future costs for the purpose of security for costs applications but I have also seen it used in expert evidence to estimate incurred costs in an application for lump sum costs. There is also a view, current amongst some costs assessors, that the Work Categories Methodology is an appropriate one for use on an assessment of costs [This view has not yet gained wide acceptance]
D.2.3 The Event Cluster Methodology
185 This involves defining the “work product”, that is, the documentary result of work performed, such as pleadings, correspondence, statements, and the like, and building the multiple items of work that go to create that work product into an event cluster, for which a value is given. That then allows a per page rate to be given to that category of work product. The number of pages in that work category is then multiplied by the per page rate to produce a lump sum amount for the category. For example, the event cluster for writing a letter could be something like the following:
Draw letter: at partner hourly rate; reasonable per page time
Type letter: at secretarial hourly rate; reasonable per page time
Fax letter
Copy letter to relevant counsel
Taking instructions: 1 letter in 5
186 For categories of work that do not result in a “work product”, such as attendances at hearing, the discrete items of work of and incidental to that category of work are clustered together as an event, and a value is ascribed. The value per event (such as a day of hearing) is then multiplied by the number of times the event occurs, with respect to each fee earner who undertakes the event.187 I have used the Event Cluster Methodology to calculate party/party costs in circumstances where a fully itemised bill of costs was not required, for example, for the purpose of negotiating party/party costs without recourse to assessment and on behalf of a liquidator requiring a valuation of party/party costs orders that were assets of a company in liquidation. These latter cases have been performed in the context of matters that can be described as “commercial litigation”.
188 One of the main advantages of the Event Cluster Methodology is a high degree of objectivity due to ascribing value to items of work based on assumptions that are widely accepted as being reasonable.
189 A disadvantage of the methodology is that the widely accepted assumptions referred to hold true only to the extent that the matter is relatively straightforward. If the matter is one that is complex, either legally, factually, procedurally or otherwise, the assumptions do not represent a reasonable amount of time and/or cost for the item of work being considered.
D.2.4 The Analogy Methodology
190 In some cases it is possible to estimate party/party costs fairly accurately, by which I mean to within a 10-15% range, by analogy to similar cases which have been through the costs assessment system. The precondition for this method to be accurate is that the matter in which party/party costs are being estimated displays substantial similarity to the assessed cases in terms of procedure, bases of liability pleaded, damages sought, amount of evidence presented by both parties, length of hearing, number of parties and so on. Examples of this are in workers compensation matters run in the Compensation Court. In that jurisdiction the variation between court procedure, bases of liability pleaded, damages sought, amount of evidence typically presented and length of hearing is relatively small for the majority of cases. In these matters, after obtaining an accurate description of the matter, and relying on knowledge of the assessment results of other matters, it is possible to estimate party/party costs fairly accurately.
191 The advantages of this methodology are that it is relatively quick, simple and inexpensive.
64 Ms Castle then gave her reasons for forming the opinion that none of these methodologies was the appropriate methodology to use in the present context:
192 The difficulty with this methodology in this matter is that there are a wide range of variables between this matter and others with which I am familiar. These variables include quantum of costs incurred, amount claimed, size and scope of pleadings, number and extent of amended pleadings, number of lay and expert witness statements, number of jurisdictions in which damages were claimed, restrictiveness of the court timetable relative to the amount of work required to be done, number of interlocutory proceedings, number of subpoenas and notices to produce issued, length of opening addresses and number of witnesses to be cross-examined.
D.2.5 The Analogy Extrapolated Methodology
193 I have considered whether I could adopt a form of analogy methodology by extrapolation, linear or otherwise, from other large commercial matters with which I am familiar.
194 The advantages and disadvantages of this methodology are the same as described above for the Analogy Methodology.
D.2.6 The Equivalent Gross Sum Reduction Methodology
195 I am familiar with the cases decided by various Australian courts in relation to gross sum applications….In some of them, the court has made a percentage reduction to the costs incurred in order to arrive at an appropriate lump sum amount. I have considered whether any of the cases that have applied a percentage reduction could be adopted directly.
196 The advantages of this methodology are that it would be relatively quick and inexpensive. The disadvantage is that the test applied to party/party costs in the Federal Court cases…is not the same as the current legislative test applicable in New South Wales. In jurisdictions other than New South Wales the party/party test of “necessary or proper” applies.
D.2.7 The Equivalent Costs Assessment Reduction Methodology
197 I have considered whether I could directly apply a percentage reduction equivalent to the percentage by which costs have been reduced in comparable matters that have been through the assessment of costs process.
198 The strength of this approach is that it would be based on known results of costs assessments. Furthermore, it would provide a simple, quick and inexpensive method of determining a reasonable lump sum.
200 Nevertheless, there are many points of similarity between this matter and other large commercial matters. They include representation of the parties by multiple solicitors and counsel, procedural similarities in that the matters are conducted in the Supreme Court in accordance with the court’s rules and case management procedures, extensive use of expert evidence, multiple interlocutory proceedings, disputes of a commercial nature, liability and damages usually in issue.199 The difficulty of employing this methodology is that this matter does not fit within familiar parameters from a costing and costs assessment point of view and is thus not “comparable” to other mattes in important ways. In some ways it is unique, both in respect of many individual factors and in the combination of factors that comprise it. I have referred to some of those factors in paragraph 192 but I repeat them here for ease of reference: quantum of costs incurred, amount of damages claimed, size and scope of pleadings, number and extent of amended pleadings, number of lay and expert witness statements, number of jurisdictions in which damages were claimed, restrictiveness of the court timetable relative to the amount of work required to be done, the number of interlocutory proceedings, the number of subpoenas and notices to produce issued, length of opening addresses, number of witnesses to be cross-examined and length of cross-examinations that were conducted.
[Pages 65-69 of the Castle Consolidated Report of 20 October 2006]
D.2.8 Summary of the recognised methodologies201 I have outlined seven recognised methodologies for calculating costs in sections D.2 to D.2.7 above. I have noted the main advantages and disadvantages of each one. In my opinion none of these methodologies is the appropriate one to use in this context for the following reasons:
(a) with respect to the Full Itemisation Methodology (D.2.1), I do not consider it appropriate as a lump sum methodology. It is a methodology appropriate to the costs assessment system. To apply it in this instance would be, in effect to conduct a costs assessment;
(b) for the reasons discussed in Section D.2.2 of my report with respect to the Work Categories Methodology, I do not consider it appropriate as a lump sum methodology. It is a methodology appropriate to the costs assessment system in some circumstances and to the calculation of costs in the context of security for costs applications;
(c) I note in any event that with respect to the Full Itemisation Methodology (D.2.1) and Work Categories Methodology (D.2.2) the material provided to me is not what I would require to employ these methodologies;
(d) with respect to the Event Cluster Methodology (D.2.3), it is my opinion that the widely accepted assumptions that underpin this methodology are not suitable to this matter as, it would involve the making of numerous qualitative assumptions in order to ascribe values that take into account the complexity and uniqueness of this matter, such as they are referred to in paragraphs 32 to 34 of the Lovell Affidavit;
(f) with respect to the Equivalent Gross Sum Reduction Methodology (D.2.6), the legislative bases underlying this and other matters are distinct and therefore not comparable, as I refer to in paragraph 199 of this report.(e) with respect to the Analogy (D.2.4), Analogy Extrapolated (D.2.5) and Equivalent Costs Assessment (D.2.7) Methodologies, the variables between this matter and other known matters, referred to at paragraphs 192 and 199 above, are too numerous;
[page 70 of the Consolidated Report of Ms Castle]
65 As a result of concluding that the above-described methodologies were inappropriate, Ms Castle developed a methodology specifically for this matter in the context of the Ausmaq Guidelines set out in the instructions which she had received from Freehills. Those guidelines were in the following terms:The Ausmaq Methodology
Schedule 2 – Ausmaq Guidelines1 The methodology should take into account the fact that the court’s power to determine the amount of costs payable is not limited by Division 6 of the Legal Profession Act 1987 (NSW). Rather, the court’s power to make orders as to costs, including a gross sum costs order, is conferred by the Supreme Court Act 1970 (NSW) and the Supreme Court Rules 1970 (NSW).
2 The methodology should have regard to, but not in any way be bound by, the principles that you identify in answer to question 1(a).
3. The methodology should be appropriate in the context of a gross sum application for costs, as contrasted with a methodology appropriate for an assessment or taxation. In calculating an appropriate gross sum, the sum should be calculated broadly having regard to the information made available to you.
4 The methodology should be logical, fair and reasonable.
6 The methodology should seek to prevent, on the one hand, prejudice to the plaintiff by overestimating the costs and, on the other hand, injustice to the defendants by adopting an arbitrary “fail-safe” discount on the costs claimed.5 The methodology should produce a gross sum amount which is a fair and reasonable estimation of the costs between the parties.
[page 5 of the annexure is to the Consolidated report of Ms Castle, this being Schedule 2]
66 The Idoport Parties have attempted [as an aide], to encapsulate the principal features of the Ausmaq Methodology in diagrammatic form as Appendix A.
The course of the cross-examination of Ms Castle
68 Table O [tabulation of the workings through her AUSMAQ methodology] featured amongst the many matters on which Ms Castle was cross-examined. In this regard:67 The Court was assisted in many ways during this cross-examination as it exposed both weaknesses and strengths, now for one party and now for another, in the very difficult exercise which faces the Court in terms of applying the principles earlier set out to these unusual proceedings.
i. Mr Foster took Ms Castle through various deductions and put to her that the reductions or discounts that she applied were arbitrary (T317.42).iii. A more detailed series of questions were directed to the deductions made by Ms Castle (from T328.12):ii. Ms Castle rejected the proposition because she had informed herself that she ought to take into account all the factors that from cost assessments and case law appeared to be relevant factors, and then she undertook an inherently qualitative exercise involving the weighing simultaneously of a number of factors to produce a reduction (T318.22);
a) Conduct money – reduction of $11,200 (T328.12)b) Counsel fees (T328.19)
c) Photocopying (T328.27)
e) Court fees (T328.44)d) Disbursements to Freehills Perth and Melbourne (T328.37)
69 Ms Castle gave more specific evidence on the deductions, in particular her approach to significant deductions, example of counsel’s fees adopted (from T330.24)
70 Ms Castle agreed with Mr Foster that to apply the indemnity cost basis as the underpinning of any methodology in the present case would be wrong (T326.50) but her evidence was that she did not do that even though it may appear that there is a presumption as to reasonableness This was because on costs assessment, when an amount has been expended and there is no apparent unreasonableness, then costs assessors deal with that onus as having been discharged (T327.03).
71 Ms Castle was questioned about the assumptions she made for the purpose of giving an opinion in section C of her report (T357.42).
72 Ms Castle was forthcoming in saying “I have never had to prepare a bill of costs that claims $75 million and so when I was thinking how would such a large bill be prepared, based on my experience of how long it takes other large bills that I have prepared to prepare, I thought it would be impracticable to have just one person working on it [sic].I thought that the size would demand a team and that’s why I thought about an appropriate size of team, but I was not trying to suggest that this is the ordinary way in which it is done.” (T358.02)
73 Ms Castle had used the word “assumption” to mean estimate (T358.41-53).
75 Ms Castle did consider whether full itemisation would be an appropriate way to present the costs in this case and she decided that it would be, for two reasons. (T360.46):74 Ms Castle agreed that this claim is a very very large claim which is outside her experience (T359.36) but did not agree with the proposition that the methodology does not relate to the work done (T359.51).
ii. second on the basis of having tried less than full itemisation and then having been ordered to present full itemisation, she took it from that that costs assessors may be uncomfortable in dealing with less than full itemisation (T363.12).
i. first it appears to be the way that gives a party claiming costs the best chance of recovery;76 Ms Castle agreed that in working out how long it would take to draw up a bill in this case she is simply applying some rule of thumb that she has gained from much different cases (T364.48)
77 It was put to Ms Castle that she was completely constrained by instructions and she replied that she was to the extent that she only had the materials she was provided with.
79 Under cross-examination she gave the following evidence:78 Ms Castle gave evidence that if the reasonable claimable professional cost had in effect been increased by the manner in which the work was undertaken, then in order to determine a reasonable amount of party/party costs it would be necessary to make some reduction to take into account that issue (Consolidated Report [238])
80 To my mind this evidence is particularly material in terms of the principled approach to be taken on the instant applications where:
“Q. You would accept, wouldn't you, that the way in which the material in the Lovell and Johnson affidavits was presented you were in no position to make a reduction on the basis that the manner of work had increased the costs?
A. That's not true because I go back to my experience of how large law firms run large commercial matters and I know that the manner of work that is typical is reduced on assessment.Q. So you would approach this matter on the basis there must be some reduction on that account, would you?
A. I think the way I approached it was I have been involved in many matters where large firms are acting in large commercial suits. I know that when they go through assessment they suffer reduction . I am going to assume that the manner of work is to some extent such as I know it to be with large law firms acting in large commercial disputes, the way that is seen by costs assessors, that is some of the phrases I have used in here "heavily resourced", "meticulous", "thorough" and so on, that is a manner of work that tends to be reduced on assessment and that's what I was - that's why I saw indicia of that, but in addition to that I weighed up the particular circumstances of this case that I don't see in some of the other cases. I also considered what it is about those cases that lead to reduction and then I made the reduction.HIS HONOUR: Q. What is it about cases where meticulous approach, great care, scrutiny and so forth has still attracted some form of deduction?
A. It is about whether in the particular circumstances of that case that approach was justified. So for example, what is referred to as teams, solicitors practising in teams, the costs assessor looks to see: Well, what work needed to be carried out, was a team needed, were those people needed in the team, was that an appropriate level of supervision by a partner of junior solicitors, and so on. In some cases particularly where the amount being sought is not extremely large the costs assessors seem to take the view that there was an overly thorough preparation of the case or an overly cautious approach to preparing the case and the costs seem to suffer a reduction for those sorts of reasons.Q. And to arguably lead to some real leeway in terms of a costs assessor's discretion?Q. So that seems to me to be a fairly subjective thing.
A. Yes, it is.
A. Very much so and I think that might explain the wide variation in results, because it is so subjective and it is so open to different interpretation.”
[transcript 415 to 416] [emphasis added]
ii. as the trial judge presiding over the interlocutory and final hearings, I have been in a position to glean the approach taken by the NAB Parties in the courtroom.
i. I am seised of all of the materials adduced by the parties on the application;81 Albeit that Ms Castle was obviously not in the same position as that of the Court in terms of being able to assess the reasonableness of the approach taken by the NAB Parties in their preparation of the case, the Court is in a considerably better position to make that assessment. Of course the Court is also not in a perfect position in this regard, but if it determines that, consistently with the principles earlier set out, it is in a position to make a gross sum costs order, it must do its best in all of the circumstances to estimate the amount of such order, in a logical, fair and reasonable fashion.
83 In truth a combination of the evidence before the Court and the experience of the Court through the interlocutory and final hearings bears out the fact that a ‘Rolls Royce’ approach was taken to every aspect of the preparation of the case. The Court’s task is the judgmental one of:82 To my mind this integer concerning a deduction for an overly cautious and scrupulous approach gives to the Court a principled entitlement to discount the claims made, approaching the question in a logical fair and reasonable fashion. The matter is of course not one of a scientific precision nature. Nor is it a mathematical exercise [transcript 424.19]. It is by nature a ‘broadbrush assessment’ but nonetheless an assessment to be exercised judicially and to be exercised by the court being astute to prevent prejudice to the respondent by over estimating the cost and on the other hand, not to cause any injustice to the successful party by an arbitrary "failsafe" discount on the cost estimates submitted to the Court.
84 Ms Castle herself in expressing her opinion that a reduction should be made to counsels fees, expressed the view that such a reduction should be a general one, achieved by the application of a percentage discount [Consolidated Report paragraph 520]. She proceeded [at 521] to note that the selection of a percentage discount was a qualitative exercise, taking into account a number of matters including:
ii. if so, of determining the precise gross costs sum.i. first determining whether it is possible to make a gross sum costs order on the evidence;
85 Ms Castle also expressed the view [Consolidated Report paragraph 522] that it was relevant to take into account the following factors:
i. the extent to which the manner of work of solicitors flowed into and affected the manner of work of Counsel;iii. the fact that (as with Freehills professional costs) without countervailing considerations, those factors would lead to a substantial reduction to counsels' fees.ii. the high level of involvement and close collaboration between Freehills solicitors and counsel for the duration of the matter;
i. the objective importance of the matter to the NAB Parties;ii. the manner in which the plaintiff's conducted the proceedings and the effect it had on the NAB Parties costs;
iv. the court timetable for the filing of evidence and in relation to the proceedings generally.iii. the large number of expert witnesses with whom counsel were required to have a high level of involvement;
86 In her view each of the factors described in the previous paragraph had the effect of lessening the reduction which would, absent those factors, have been appropriate apropos counsels fees.
87 Mr Foster put to Ms Castle the proposition that it may have been possible for her to take a particular period of time [for example a six-month period] and to examine the work carried out during that period in order to extrapolate into basing a view as to the appropriate gross sum costs amount to be awarded for all of the work carried out over the whole of the period.
88 Ms Castle gave evidence that she had considered such a modus operandi but did not think that she would be able to choose a timeframe which properly represented [and was acceptable as representing] how the rest of the course of the proceedings played out in terms of costs [transcript 433.15]. On a number of other occasions Ms Castle gave evidence generally to the same effect, not only in relation to the extrapolation issue quarantining the exercise to the instant proceedings, but also in relation to an inability to extrapolate to draw particular analogies from other cases of which she was aware. The purport of her evidence was accordingly that the unusual circumstances of the proceedings presently in focus posed the difficulties of selecting a representative timeframe to use as a basis for a general extrapolation.
89 Ms Castle also accepted that she had not had the material to be in a position to so approach the instant question.
The evidence given by Ms Vine-Hall
90 Ms Vine-Hall has also had very extensive experience principally as a director of DSA Legal Cost Consultants having over an extensive period of time been involved in the preparation of bills of cost, preparation of notices of objection, attendances on taxations, lecturing in the field of costing, and having been retained in and giving evidence in relation to hearings where costs related matters have required to be determined. In 1991 she was appointed to the Law Society of New South Wales Working Committee on costs and her extensive CV includes contributions she has made to a series of seminars conducted by the Law Book Company concerning the deregulation of costs and practice management and her appointment as a guest member of the Law Society 's GST Technical Team in relation to the application of GST to costing issues.
91 She regularly attends before taxing officers and has had vast experience in the legal cost consultancy field.
92 Ms Vine-Hall has never been involved in a lump sum application of this order (T490.04) nor had she ever prepared a bill of costs where the bottom line was something approach $60-odd million (T490.08).
94 Notwithstanding these differences her evidence was:93 She had been furnished with Ms Castle's affidavits and reports, had studied them and gave evidence suggesting difficulties with Ms Castle's methodology and conclusions.
"[T]here is a divergence of opinion between assessors as to what may or may not be reasonable in relation to the recovery of costs on a party/party basis and accordingly Ms Castle's opinion is only one of a number of possible opinions on the recoverability of these costs." [Affidavit 19 December 2003 at 11].95 Ms Vine-Hall disagreed with Ms Castle's estimate of the time which would necessarily be taken for a full assessment and of the likely costs of the assessment.
96 She also gave evidence that most of the methodologies outlined by Ms Castle would be either inefficient, uneconomical or inappropriate for the determination of costs of a matter in the nature of the present proceedings. She did however agree with the similar matter approach [transcript 500.09].
97 Ms Vine-Hall did not agree that the AUSMAQ methodology developed by Ms Castle was an appropriate method to estimate the party/party costs in the matter: transcript 492.40.
98 Her evidence was that something less than a full itemisation could be achieved (T500.17)
100 Under cross-examination in relation to her suggestion that there could be a selection process made of a sample period of time, for example six months, she was asked and answered as follows:99 Ms Vine-Hall was cross-examined as to her suggestion as to how in the present case, something less than a fully itemised bill of costs might achieve the result for an assessment (T500.4). She replied that one way of doing it would be to take a period of time and to have a look at what work was undertaken in that period and to look at the way in which the work was undertaken, the resources that were put to the work, the total costs that were incurred in order to get a feel for the work practices and the manner generally in which work was approached and then extrapolate across the rest of the matter (T501.01)
“Q. The underlying assumption first is that you can identify a period of time which in some way, shape or form might be regarded as representative, correct?
A. Yes.Q. And you would agree with me that there would be an evaluation process which would have to take place and which may not be the subject of agreement from the other side, but what you or someone else has selected as indeed representative?
A. Yes…”
[transcript 503-504]“Q. Now, coming back to the example you give, for the six months snapshot, if that's what it would be, apart from picking a period that would be representative, whether your opponents agree or not, at the end of the day the utility of that exercise is very largely going to be driven by the level of detail that you find?
A. Yes.Q. And you would agree that, as a general comment perhaps, the level of detail varies quite considerably from item to item?Q. And, indeed, in this case you have had of course access to a sample of some of the time sheets, haven't you, or time recordings?
A. Yes.
A. Yes.”
[transcript 507.08-24]101 I am entirely satisfied that the particular difficulty in an attempt to extrapolate which exists in the present circumstances arises because of the problems in ever being able to identify a time period representative of the course of the whole of the proceedings. No such time period could be selected which could be extrapolated in a logical, fair and reasonable fashion to the balance of the proceedings. Throughout the period from mid-1999 until the dismissal of the Proceedings on 29 January 2002, the NAB Parties were undertaking multiple tasks, including the giving of discovery, the taking and filing of statements and the preparation for the cross-examination of witnesses.
102 The first Lovell affidavit demonstrates that throughout the period from mid-1999 until the dismissal of the Proceedings on 29 January 2002, the NAB Parties were undertaking multiple tasks, including the giving of discovery, the taking and filing of statements and the preparation for the cross-examination of witnesses [as is demonstrated by the detailed tables [MF1 NAB Final annexure 1].
103 Although disagreeing with many parameters of the opinions of Ms Castle, Ms Vine-Hall did accept that determination of the rate which would be allowed by any assessor for the work undertaken on behalf of the NAB Parties in the proceedings "will possibly be somewhat subjective and may even be an arbitrary decision." [Affidavit 19 and December 2003 at 88].
104 Ms Vine-Hall gave evidence that it was her experience that the larger the matter and the more persons working on it, the more potential there was for duplication and over supervision and the higher the risk that a larger percentage of the professional costs would not be recoverable on a party/party basis. She noticed the admission by Ms Castle that the team was resource heavy and that there was a "very high level of preparation and attention to detail". Ms Vine-Hall also noted that the total amount of photocopying was extraordinary and saw no reason why a large amount of the photocopying could not have been undertaken by commercial photocopying services at a lower rate than had been charged. She also noted that the recovery of experts’ costs was by far and away the most complex issue in cost assessment, as costs assessors have no objective basis upon which to analyse the charges made by other professionals for their assistance in litigation. This last observation is of particular note in the instant context.
105 To my mind the efforts by Ms Vine-Hall to extrapolate from the assessment of costs exercise which had been carried out in the MLC proceedings to the costs issues presently in focus is of no real assistance in the current exercise. The decision of Costs Assessor Benjamin had gone to a costs review panel which had replaced his determination with another which seems to me to be relevantly devoid of sufficient clarity of reasoning processes to be regarded as a reliable indicator of even why the costs review panel had approached the manner as it had. But by far the more pervasive problem with the extrapolation exercise is simply the vast difference between the two matters which would require to be compared and of course the fact that the Court is presently treating with a gross sum costs application.
106 As the NAB Parties have contended, the work claimed for in respect of the MLC Proceedings [Supreme Court Proceedings No. 3991/00] was of a fundamentally different character to the scale, scope and complexity of the costs the subject of this gross sum costs application. The costs the subject of the claim in the MLC Proceedings were substantially concerned with discovery. At the time that the MLC Proceedings were dismissed, the NAB Parties had not yet filed a defence or served any witness statements, no subpoenas had been issued by either party and there had only been limited interlocutory applications.
107 On an overview basis and having read each of the affidavits of Ms Vine-Hall carefully and having followed her cross-examination, I formed the very distinct impression that she was considerably hampered by the simple fact that the forensic requirements of the particularly unusual litigation in focus were as a general matter, simply outside of her knowledge. Yes, she does have enormous experience in costs assessment and related matters. But no, this unusual litigation and the strains and pressures placed upon the NAB Parties in relation to the requirements of the many pleading changes made by the Idoport Parties and the changing nature of their tactical approach to statements, order of witnesses and the like, simply cannot be eschewed by an approach which seeks to extrapolate from the usual type, even of very complex litigation.
109 Part of her cross-examination included the following:108 I was particularly struck by Ms Vine-Hall's criticisms of the amount of work undertaken on the statement prepared for Mr Simon Moore who had produced a very extensive statement indeed. Notwithstanding that Ms Vine-Hall had not read any of the plaintiffs statements [to which Mr Moore's statement was responding], her evidence under cross-examination was that she had not felt that she was in no position to criticise the work carried out in relation to Mr Moore and had not been inhibited by this factor. Nor had she made any attempt at all by way of analysis of any pleadings to try and work out what was the forensic purpose behind the putting on of the Moore Statement. (transcript [586.36])
“Q. Do you really seriously suggest that an element of unreasonableness in relation to the preparation of the Moore statement are the number of verbatim quotations of conversations?
A. No, that is not what I suggest at all. What I am saying is that when you are analysing what would be a reasonable amount of time in the preparation of a statement you look at what material is being dealt with in the statement. Now if you are recording for the witness information that he is telling you in the form of a conversation he had, he tells you: On Thursday I said to so and so blah-blah-blah-blah, and you write that down, and you get it in one draft and you say to him, "Is this what you said" and he says, "Yes", and that's the end of that work.”
[transcript 593-594]
110 This certainly does not accord with the exigencies of the litigation in hand. The litigation in hand comprised a veritable war being waged on many fronts and engaged in by legal practitioners possessed [on both sides of the Bar table], of the highest forensic skills and utilising the same with deadly accuracy in a field of discourse which was unusual in the extreme.
112 Ms Vine-Hall also gave evidence that she did not think that she had read any of the plaintiffs’ statements but was concentrating only on the defendant's statements. Her evidence included:111 The parties were also placed under considerable pressure to comply with case management directives in a non-static environment – taking the case out of the norm.
113 Additionally under cross-examination she demonstrated the limits of her general understanding of parameters being litigated:
“Q. How could you possibly get a dimension of the litigation and its complexity by reading only one side's statements, do you think?
A. Because as a costing person you get a very quick broad view of a case by reading across matters. You cannot possibly read every word of every document or else you wouldn't do more than one matter a year.Q. Perhaps I will just try that question again before the break: How did you feel that you could get a feel, as it were, for the complexity of the case by only reading one side's statements?
A. Because I had an idea of the case from my earlier involvement in terms of the amount of time that had been spent, where it was up to. I had an idea of the plaintiffs' general costs, I had the materials before me in the Lovell and the Johnson affidavits saying what they had done and I had the Castle affidavit.Q. Are you saying that in your prior involvement in the case on security for costs you read then such statements that the plaintiff had filed?
A. I don't recall.Q. May I ask this: Did you read any of the expert reports on either side?
A. No, I don't believe I have.Q. Didn't even look at them?Q. None?
A. No.
A. No, I don't believe I did.”
[transcript 511-512]
114 Ms Vine-Hall conceded that her appreciation of the case was only from a high level perspective:
“MR SACKAR: Q. Ms Vine-Hall, I know what you told me before lunch in terms of having not read any of the experts' statements, but did you have any appreciation of not only the jurisdictions but the number of markets within each jurisdiction that expert statements were called upon to deal with in the case?
A. I had an appreciation that there was a large range of issues to be looked at through experts' statements, yes.Q. But do I take it that apart from that high level appreciation, you have never at any point applied your mind to consider both the number of jurisdictions and the number of markets within each jurisdiction so as to come to a view one way or another as to the complexity of the damages case?
A. No, I have not looked at the breadth of the markets, no.Q. And would you agree that had you done so it might have given you an added dimension on why in this case there were for example so many experts from so many jurisdictions?Q. Not only the breadth of the markets, you have not looked at the specific details within each market of what particular product markets, for example, were the subject of claims for damages, correct?
A. That's correct.
A. I don't think I have ever expressed an opinion on the nature of the expert witnesses that were being called and it wouldn't have increased or deceased my [sic] appreciation of the scope of the case I don't think.”
[transcript 513]
“MR SACKAR: Q. Well, let me try and help you. Would you agree with me that in order to try to come to some view as to the reasonableness of the incurring of costs in relation to experts you would have to try to form a view, if the first instance, if you could, as to what the case was in respect of which the expert evidence was directed?
A. Yes.Q. And that would involve trying to understand in respect of there were multiple jurisdictions, as here, trying to understand in each and every jurisdiction a little bit of detail about the kinds of claims that the plaintiff was seeking to make in respect of each of the jurisdictions?
A. Yes.Q. And that would of course illuminate the issue because it would mean that you at least would then be able to consider what it was that the defendants were seeking to respond to?
A. Yes.Q. And you are certainly not, I take it, in a position to venture a view one way or the other as to whether it was a complex case or not, except at a very high level?Q. And I take it that apart from a very high level you have never sought to gain any in depth understanding of the damages case in relation to experts?
A. That's correct.
A. Yes, that would be true.”
[transcript 514.06-36]
115 She had drawn upon an experience in having studied certain cases which were part of what may be described as the Supreme Court pilot scheme known as test cases. There were three such cases in none of which the assessment process had concluded. In one case, the party paying the costs has objected to proceeding without full itemisation and in another case the paying party has not even yet responded to the partially itemised bill of costs. To my mind there must be severe shortcomings in an extrapolation from such test cases.
The manner in which the Court approaches the instant applications
117 In that regard:116 Many of the propositions put by the Idoport Parties as to the proper approach to be taken by the Court on the instant applications have been accepted in terms of the appropriate broad brush approach that is logical, fair and reasonable.
i. the Court has taken into account the considerations that a costs assessor is required to have regard to pursuant to section 364 of the Legal Profession Act 2004 (NSW). In particular, the requirement for the costs assessor specified in section 364(1) to consider:ii. the Court has taken into account each of the following matters which an assessor may have regard to under s 364(2) of the Legal Profession Act 2004 (NSW) in considering what might be a fair and reasonable amount of legal costs, namely:
“(a) whether or not it was reasonable to carry out the work to which the costs relate, and whether or not the work was carried out in a reasonable manner, and what is a fair and reasonable amount of costs for the work concerned.”
“(a) the skill, labour and responsibility displayed on the part of the Australian Legal Practitioner or Australian-Registered Foreign Lawyer responsible for the matter, the complexity, novelty or difficulty of the matter, the quality of the work done and whether the level of expertise was appropriate to the nature of the work done, the place where and circumstances in which the legal services were provided, the time within which the work was required to be done, the outcome of the matter.”
iii. the Court has approached the matter upon the basis that the application of the tests under sections 364(1) and (2) are to be considered as at the time that the work was carried out, and not with the benefit of hindsight. [ Kelly v Norris [2004] NSWCA 260 at [21] and [32] per Santow JA; Farrow Mortgage Services Pty Ltd (in liq) v Trewhitt (unreported, 2 November 1995, Hansen J) at [14]]
v. the Court has taken into account the facts that:iv. the Court has had regard to, but has not regarded itself as bound by, opinions expressed by the costs consultants called by the parties as to their views, on the material made available to them, of the likely approach that a costs assessor might take to the costs claimed, if the matter was to proceed to an assessment.
a) that neither Ms Castle nor Ms Vine-Hall was given access to the breadth of documentation that would be required to permit them to prepare a fully itemised or any other form of bill of costs for the purposes of a traditional costs assessment;c) the time and costs that would necessarily be involved in an analysis of file notes and time costing records would subvert the function of a gross sum costs application. [There are approximately 92,300 time entries recorded in Freehills CMS time recording system that relate to the Proceedings. The “solicitors file” for the NAB Parties is stored in approximately 5,800 document storage boxes.]b) each could only comment on the material made available to them in the context of a gross sum costs application.
vii. as the NAB Parties have contended:
vi. it is accepted that the scope and complexity of the proceedings, exacerbated by the absence of any final determination by the Court, makes it an extraordinarily difficult exercise for any costs consultant to predict the approach that might be taken by an assessor to the costs claimed by the NAB Parties in these proceedings.
a) the evidence of the expert costs consultants in these proceedings is more valuable where it focuses on the principles that costs assessors would have regard to and suggests approaches that might assist the Court in understanding the approach generally taken by costs assessors in determining ‘reasonableness’ as required by the Legal Profession Act 2004 (NSW).
b) ultimately the trial judge is much better placed to apply the principles in a gross sum costs context, bearing in mind the very different dimension in which it does so in contrast to a costs assessor.
d) the exercise that would be undertaken by a costs assessor involves building up a picture of the costs on an item by item basis and is an approach that proceeds independently and in the absence of any close observation and comprehension of the specific complexities and dynamics of major commercial litigation, in particular in these proceedings the scope of the expert issues, both in relation to the functionality of the AUSMAQ Service and the global commercialisation of the service in many varied product markets.c) necessarily the expert costs consultants have only had access to a subset of the material that each would have reviewed prior to the preparation of itemised bills of costs and detailed objections that would then have been made available to a costs assessor.
151 Nevertheless the model does not provide any dimensionally differing assistance than the other charts and aids submitted previously by both parties to illustrate the possible range of gross sum costs to be awarded. As indicated previously, it is not for the Court to assume the role of a costs assessor and to descend into the details of the breakdown of different categories of costs.
The ultimate finding
152 Reference has already been made to the Rolls-Royce approach taken by the NAB Parties to the litigation. That approach was entirely justifiable in terms of the magnitude of the claims made and the significance of the litigation to the NAB Parties. However the Court requires to look at the position of both parties in estimating the gross sum costs amount and in doing so approaches the matter by reference to the logical, fair and reasonable criteria.
153 The detailed evidence before the Court justifies a gross sum costs award of $50,000,000. It is unnecessary to do more than to fix that amount as the relevant award. However it is appropriate to make clear that insofar as the amount awarded represents a lower figure than that sought by the NAB Parties, the entitlement of the Court to discount an amount claimed [in the exercise of the discretion earlier referred to] is clearly supported by the authorities earlier referred to in this judgment.
The remaining loose ends
154 It is appropriate to next deal with the remaining loose ends.
Costs between stay and dismissal
155 In my view in exercising the appropriate discretion there should be no deduction from the gross sum, of costs incurred by the NAB Parties between the stay and dismissal of the proceedings.
157 As has been submitted by the NAB Parties, Societe Anonyme Pecheries Ostendaises v Merchants Marine Insurance Company [1928] 1 KB 750 is a decision in which the United Kingdom Court of Appeal held that a stay of proceedings pending payment of security for costs did not operate to prevent a party from preparing the case and that it was within the discretion of the Master to allow costs so incurred during the period of a stay. Lord Hanworth MR at 758 said:156 The NAB Parties have drawn attention to the undoubted discretion in the Court to take into account the relevance of the work done during, and the circumstances of, the stay.
158 Lord Atkin and Lord Lawrence agreed. Lord Atkin at 760 put the matter as follows:
“It appears clear to me that the order staying proceedings was not intended to do more than prevent unnecessary steps being taken in the action itself. It was not intended to prevent such activity as would contribute to the success of the party, ultimately, and if such a step, such as the collection of evidence, was necessary because the witnesses might be dispersed, it cannot be said that it was a matter falling within the purview of the order staying proceedings and that no such expense should be incurred and no such activity engaged in.”159 The evidence establishes that the work done on behalf of the NAB Parties during the period between the stay and dismissal of the proceedings included:
“To my mind it is quite a mistake to suppose that an order to stay proceedings amounts to a direction to the parties to hold their hands from the time when the order is made and to indulge in no further activities with a view to ascertaining the facts, procuring the evidence and so forth. Such a view would be quite contrary to the ordinary practice. There is no doubt that while a stay is pending until security for costs is given or during any other period, it is the common practice of diligent plaintiffs and defendants to use that time in making preparations for the trial of the case. They may, of course, go too far and make excessive preparations, and if they make excessive preparations it may well be that the costs will not be allowed; but it is quite plain that nobody understands the order for a stay as directing them to do nothing in the action, and I am quite clear that that is not the legal effect of it.”
i. reviewing further statements filed on behalf of Idoport;ii. reviewing the allegations in the Fourth Further Amended Statement of Claim that Idoport had been granted leave to file on 29 October 2001 and considering and preparing the additional evidence required to address those allegations;
iv. preparing for cross-examination of further witnesses to be called by Idoport.iii. preparing further discovery;
160 I accept as of substance the contention that at the time the proceedings were stayed on 27 November 2001, the NAB Parties could not reasonably assume that the hearing would not resume in February 2002 or that the proceedings would necessarily be dismissed. A full blown case had been running in Court from July 2000 to late 2001. Teams of solicitors, counsel and experts had been retained and the reality required the NAB Parties to assume that the case may be in full continuance at short notice if the security for costs orders were complied with and to be careful to be in a position to do so.
161 As the NAB Parties have contended, even on 29 January 2002, Mr Maconochie sought to persuade the Court that there was a real possibility of Idoport securing the necessary funding to continue with the proceedings. Hence if the hearing had resumed, the NAB Parties would have needed to comply with orders for further discovery, proceed with cross-examination of Idoport’s witnesses and to file (presumably, relatively quickly) further statements addressing the issues raised by the Fourth Further Amended Statement of Claim, which introduced substantial new allegations.
162 I accept that as a matter of practical reality, the NAB Parties could not require solicitors and counsel to cease work on the case entirely, and yet remain free from all other commitments and be ready to re-engage fully in the matter in February 2002, if required. It was reasonable for the NAB Parties to carry out the above-described work between the stay order and the dismissal.
163 I accept that for these reasons the principled exercise of the discretion should not deny the NAB Parties any part of the costs incurred after the stay of the proceedings.
164 It is appropriate for the Court, in exercising its discretion, to take into account the settlement reached between the NAB Parties and OAMPS Limited and its subsidiary Australian International Insurance Limited (together, OAMPS) in May 2005. The settlement related to:OAMPS settlement
i. all claims the NAB Parties had as a result of OAMPS providing funds to Idoport for the Proceedings;iii. all claims relating to the costs of those proceedings.ii. all claims the subject of proceedings no. 2571 of 2004, in which OAMPS was ordered to provide discovery to the NAB Parties; and
165 The terms of settlement provide for OAMPS to pay $2,950,000 to the NAB Parties immediately and to pay a further $5,000,000 by 31 July 2009. As the NAB Parties contend, that further payment may be satisfied from fees to be paid by OAMPS for certain banking and related services to be provided by the NAB Parties. The terms also provide that the obligation to pay the sum of $5,000,000 will be deemed to be satisfied in full if the NAB Parties are paid, in aggregate, their total actual legal costs and expenses of the Proceedings incurred up to 30 June 2003.
167 However, the NAB Parties have contended that it would not be appropriate to make a further reduction of $5,000,000 for the following reasons.166 The NAB Parties contend that the principled exercise of the Court's discretion is to reduce the gross sum determined by the Court by $2,950,000 in light of these terms of settlement.
i. that amount does not reflect the value of any net benefit or payment received by the NAB Parties. To the extent that the $5,000,000 is satisfied from payments for banking services, the NAB Parties will incur costs of providing those banking services to OAMPS before receiving the benefit of the fees;iii. OAMPS’ obligation to make the payment by way of banking fees would cease if the NAB Parties recover their actual costs of the proceedings (that is, in excess of $75,000,000) in full.ii. the settlement related not only to the NAB Parties’ costs of the Proceedings, but also to the discovery proceedings;
168 In my view there is no substance to this proposition. Clause 3 (a) of the Deed of Settlement imposes a positive obligation to "satisfy the Payment Obligation in full", albeit by 31 July 2009. The "Payment Obligation" is defined to mean "$5,000,000".
170 To determine the quantum of the deemed fees for banking services, the following clauses of the terms of settlement need to be considered:169 A further "Payment Obligation" to be satisfied from deemed fees in respect of banking services and a cash payment for any balance is to be found in clause 3 (b).
(a) Clause 4.2 requires OAMPS to use all reasonable endeavours to use the National Parties as their banker for the duration of the Banking Term. See also recital I.(b) Clause 5 requires OAMPS to use the National Parties for all Master Custody and Related Services. These services are defined in clause 1.1 of the terms of settlement, which in turn refers to the Custody Agreement. This is a separate obligation.
(c) The terms of settlement contemplate that the Banking Term will be the period from 1 July 2005 to 30 June 2009, which is a period of four years (see clause 1.1).
(e) In the event that the fees for banking services are less than the payment obligation OAMPS is required to pay the difference to the National Parties by 31 July 2009 (clause 4.1(c)). In the event that the payment obligation is exceeded there is no refund payable by the National Parties (clause 4.1 (f)). In other words, the $5 million is a fixed obligation.(d) Clause 4.1(b) provides that banking services must in each relevant year generate deemed fees, as calculated in clause 4.1(a) of at least $1 million or, if OAMPS ceases to require Master Custody and Related Services, $1.25 million.
171 The NAB Parties have contended that the sum of $5,000,000 does not represent the value of the banking services to them. No evidence was led to establish this fact.
172 In my view the total value of the consideration to be received by the NAB Parties under the terms of settlement is no more and no less than $7,950,000. OAMPS and AIIL have rendered themselves liable for the payment in one manner or another of this amount.
173 Accordingly the principled exercise of the Court's discretion is to reduce the gross sum determined by the Court by the whole of the sum of $7,950,000. It is in the circumstances, logical, fair and reasonable to give Idoport credit for the whole of the arrangement between the NAB Parties and OAMPS for the provision of banking services.
Interest
174 Section 101 of the Civil Procedure Act 2005 (NSW) provides that the Court may order that interest is to be paid on any amount payable under an order for the payment of costs, either from the date on which the costs concerned were paid or such later date as the Court may order. [See CPA, s.101(4) and (5); formerly SCA, s.95(4).]
175 The power to award interest on costs is a wide power, consistent with the Court’s general powers in relation to costs. [See CPA, s.98; formerly SCA, s.76. See Grogan v Thiess Contractors Pty Limited [2000] NSWSC 1101 at [10]; Australian Development Corporation Pty Limited v White Constructions (ACT) Pty Limited (in liquidation)& Ors [2002] NSWSC 280 at [9]-[16]; see also Davies v Ku-ring-gai Municipal Council [2003] NSWSC 1010 at [2]-[3]].
177 In determining whether to order the payment of interest on costs in any particular case, the Court looks at all the circumstances of the case, including:176 The purpose of the power is to compensate the party entitled to costs for having been out of pocket as a result of paying legal costs over a period of time before being able to recover those costs from the other party. [See Hughes Brothers Pty Limited v The Trustees of the Roman Catholic Church for the Archdiocese of Sydney [1999] NSWSC 1051 at [60]; Grogan v Thiess Contractors Pty Limited [2000] NSWSC 1101 at [12]; Australian Development Corporation Pty Limited v White Constructions (ACT) Pty Limited (in liquidation) [2002] NSWSC 280 at [17] and [29]; see also Davies v Ku-ring-gai Municipal Council [2003] NSWSC 1010 at [25]; Optus Networks Pty Limited v Leighton Contractors Pty Limited [2005] NSWSC 156 at [9]; see also McWilliams Wines Pty Limited v Liaweena (NSW) Pty Limited (1993) 32 NSWLR 190 at 192].
(a) the amount of costs paid by the party entitled to costs;(b) the length of time for which the claimant is out of pocket before recovering its costs;
(d) how the parties have conducted themselves during the litigation. [See Grogan v Thiess Contractors Pty Limited [2000] NSWSC 1101 at [10]-[12]; Australian Development Corporation Pty Limited v White Constructions (ACT) Pty Limited (in liquidation) [2002] NSWSC 280 at [28]; Lolomania v Roads & Traffic Authority (NSW) [2002] NSWSC 918 at [12] (citing Australian Development Corporation with approval) and at [18]; Davies v Ku-ring-gai Municipal Council [2003] NSWSC 1010 at [5]-[7]; Bountros v South Western Sydney Area Health Service [2005] NSWSC 564 at [7]-[9]; Roads & Traffic Authority v Cremona (No 3) (2005) 140 LGERA 420 at [24] and [34]; Optus Networks Pty Limited v Leighton Contractors Pty Limited [2005] NSWSC 156 at [9], [12]-[14] and [26]].(c) whether, during that time, the respondent has had the use of the money in a commercial enterprise; and
178 I accept that the principled exercise of the relevant discretion is to order Idoport Parties to pay interest on the gross sum amount determined to be payable to the NAB Parties.
179 Between approximately September 1998 and January 2002, the NAB Parties paid some $75,000,000 in legal costs and disbursements to defend the proceedings. By the time of this determination of the NAB Parties’ application for a specified gross sum for their costs, the NAB Parties will have been out of pocket for between approximately 5 and 8½ years except for amounts received from OAMPS in accordance with the settlement referred to above.
180 It is noteworthy that in the period of almost 5 years since the proceedings were dismissed, the Idoport Parties have declined to pay any part of the NAB Parties’ costs, notwithstanding that some of the costs are not in dispute and despite requests by Freehills that the Idoport Parties identify and pay undisputed items.
181 In all of these circumstances, I accept as correct the submission by the NAB Parties that an appropriate exercise of the Court's discretion is to order that the Idoport Parties pay interest to compensate the NAB Parties for the delay in receiving their costs and that the restraint imposed by the barring order should include interest on those costs.
182 I note that although s.101 (5) of the Civil Procedure Act 2005 (NSW) provides that the Court may order interest on costs from the date or dates on which the costs concerned were paid, for simplicity of calculation, the NAB Parties seek an order that the Idoport Parties pay interest on the gross sum amount from 29 January 2002, being the date of dismissal of the proceedings and the last date in respect of which the NAB Parties seek to recover costs from the Idoport Parties. This seems to me to be an appropriate exercise of the Court's discretion.
183 It is true that the Idoport Parties complain that it was first notified of the NAB Parties’ intention to seek an order for interest on costs on 11 May 2006. However and as the NAB Parties have contended, the Idoport Parties do not identify any prejudice that has resulted from the notice being provided at that stage.
184 There is no reason to assume that Idoport was unaware of the Court’s power to order payment of interest on costs. Even if the Idoport Parties had been unaware of the power, there is no evidence to indicate that it would have conducted itself differently in relation to payment of the NAB Parties’ costs if it had been aware of the potential for the Court to order the payment of interest on costs.
185 Irrespective of when the NAB Parties notified their application for interest, they could not take the claim for interest very far without a gross sum costs order.
187 As observed in Australian Development Corp Pty Limited v White Constructions (ACT) Pty Limited (in liquidation) :186 For these reasons I accept that the timing of the NAB Parties’ notification of the claim for interest is no reason to deny interest, or limit the period in respect of which interest is awarded. [See Grogan v Thiess Contractors Pty Limited [2000] NSWSC 1101 at [25]-[28]; Optus Networks Pty Limited v Leighton Contractors Pty Limited [2005] NSWSC 156 at [21]-[26]].
“...the true position is that the ordering of interest on costs will be appropriate (absent disentitling conduct) where the discretion is properly enlivened, namely, where the applicant has been relevantly out of pocket from having arranged to pay legal costs from time to time during the course of lengthy litigation in which the applicant ultimately succeeded and where the respondent may be presumed to have benefited from not having had to pay the costs at the time when they were paid to the applicants’ legal representatives, hence having had the use of the money from that time.” [[2002] NSWSC 280 at [28], cited with approval in Lolomanaia v Roads & Traffic Authority of New South Wales [2002] NSWSC 918 at [12] .188 The Idoport Parties also point to the period of time that has elapsed since the costs order was made on 29 January 2002 and the determination of this gross sum application as a factor in favour of denying the NAB Parties interest, or only awarding interest in respect of a relatively short time period.
189 I accept that it is not shown to have been the fault of either party that this period of time has elapsed.
190 I further accept that it was entirely appropriate for the NAB Parties to await the outcome of the Idoport Parties’ appeal from the dismissal of the Proceedings and its subsequent application for special leave to appeal to the High Court.
191 In any event, it is clear that it would have taken a substantial period of time for Mr Lovell and Mr Johnson to prepare their lengthy and detailed affidavits. Ms Castle was not provided with draft versions of these affidavits. She commenced work in preparing her substantial report after receiving Mr Lovell’s first affidavit in December 2002. Ms Castle’s first report was then completed and signed on 8 August 2003.
192 I accept that the time that has passed since the filing of the notices of motion seeking gross sum costs orders on 1 September 2003 has been occupied by the filing of evidence by both parties, including a further round of evidence filed by the Idoport Parties in July 2005, the Idoport Parties’ application for determination of separate questions and the Idoport Parties’ application for further discovery. The gross sum costs applications were listed for hearing in May 2006 for three weeks commencing on 27 November 2006.
193 In resisting the claim for interest, the Idoport Parties also assert that it should not be treated as though it was conducting a commercial operation. As the NAB Parties have submitted, there is no evidence about this and it may or may not be correct. However, the Idoport Parties may be presumed to have benefited, either directly or indirectly, from not having had to pay the NAB Parties’ costs on 29 January 2002, or at any time since then. For example, the Idoport Parties may have avoided the need, until now, to borrow money that it will require to pay the costs determined by the Court. Alternatively, the Idoport Parties may have avoided, until now, becoming insolvent by reason of its liability to pay a specific sum determined by the Court. I accept that this benefit, together with the fact that the NAB Parties have undoubtedly been kept out of pocket since 29 January 2002, warrants the award of interest in this case.
194 Further there was nothing to prevent the Idoport Parties from paying some part of the NAB Parties’ costs, thereby preventing interest from running, at least in relation to that part. The Idoport Parties have chosen not to take this course. As the NAB Parties have contended, this has been to the benefit of Idoport and to the detriment of the NAB Parties, who have been kept out of pocket.
195 The Idoport Parties’ submissions that any amount of interest should not exceed interest on an amount equivalent to the Idoport Parties’ own legal costs (allegedly $10,9000,000), even if the Court awards the NAB Parties a gross sum figure in excess of this amount, is not of substance. In any event, the amount of the Idoport Parties’ costs are simply not known.
Orders
196 The parties are to bring in short minutes of order to reflect the findings. At the same time costs may be argued.
Table P: Total Costs after Application of the Ausmaq Methodology
Total for Professional Costs: Conduct Money Subpoena Fees eLaw Transcript Counsels' Fees Expert Statements
[2]Photocopying Colour Photocopying Binding Fares and Travelling Disbursements incurred by Freehills (Perth and Melbourne) Court Fees Rent (Macquarie Street) Process Service Search Fees Facsimiles Couriers Telephone (mobile and IDD) Total for Disbursements:
Summary of Allowances Amount allowed for professional costs: $27,211,790.16 Amount allowed for disbursements: $34,498,536.37 Amount allowed for costs and disbursements: $61,710,326.53
APPENDIX C - Idoport Pty Ltd
National Australia Bank Limited
Gross Sum Application
“Ballpark” calculations of defendants’ costs
Professional costs – 840 days Vine-Hall “ballpark” Scenario 1 Scenario 2 Castle Partners $1,170,000.00
1 partner, 840 days, 4 hours per day at $350.00 per hour$5,880,000.00
2 partners, 10 hours per day at $350 per hour$7,560,000.00
2 partners, 10 hours per day at $450 per hourSenior solicitors $2,016,000.00
1 solicitor, 840 days, 8 hours per day at $300.00 per hour$5,040,000.00
2 solicitors, 10 hours per day at $300 per hour$5,880,000.00
2 solicitors, 10 hours per day at $350 per hourJunior solicitors $8,400,000.00
5 solicitors, 840 days, 8 hours per day at $250.00 per hour$16,800,000.00
8 solicitors, 10 hours per day at $250 per hour$18,480,000.00
8 solicitors, 10 hours per day at $275 per hourParalegals $3,366,000.00
5 paralegals, 840 days, 8 hours per day at approximately $100 per hour$6,720,000.00
8 paralegals, 10 hours per day at $100 per hour$6,720,000.00
As for Scenario 1Subtotal $14,952,000.00
Based on Vine-Hall 20/7/05 at [50]-[51]$34,440,000.00
Based on 840 days, rates specified by Vine-Hall 20/7/05 at [50]-[51] & increasing no. of resources & 10 hr days
Note: This is very close to total professional costs incurred of $34,978,147.15)$38,640,000.00
Resources, days & hours as for Scenario 1, but increase rates to higher end of range in Joint Report 24/10/06 at [20]
Note: This exceeds total professional costs incurred$27,211,790.16
Based on $723,736.25 reduction for rates, plus 15% reduction
Not based on 840 days.
See Castle 20/10/06 at [360]-[380], Table H, [381]-[430], Table O
Disbursements Vine-Hall “ballpark” Scenario 1 Scenario 2 Castle Counsel No suggested ballpark figure $5,228,452.00
Apply Vine-Hall’s suggested 50% reduction to actual fees: see Vine-Hall 20/7/05 at [70]-[71]$7,319,833.00
Apply Vine-Hall’s suggested 30% reduction to actual fees: see Vine-Hall 19/12/03 at [133]-[139]$8,790,315.00
Claimable costs ($10,456,904) less counsel’s expenses ($115,357) less 15%: see Castle 20/10/06 at [513]-[524]Court filing fees No suggested ballpark figure $48,062.33
See Joint Report 24/10/06 at [30.1]$48,062.33
See Joint Report 24/10/06 at [30.1]$48,062.33
See Joint Report 24/10/06 at [30.1]; Castle 20/10/06 Table OTechnology Court No suggested ballpark figure $227,272.50
See Joint Report 24/10/06 at [29.1]$227,272.50
See Joint Report 24/10/06 at [29.1]$227,272.50
See Joint Report 24/10/06 at [29.1] ; Castle 20/10/06 Table OTranscript No suggested ballpark figure $308,711.38
See Joint Report 24/10/06 at [29.1]$308,711.38
See Joint Report 24/10/06 at [29.1]$308,711.38
See Joint Report 24/10/06 at [29.1]; Castle 20/10/06 Table O
APPENDIX D
Modified Table P to Ms Castle’s Consolidated Report: Defendants’ Total Costs
Description Amount Claimed Ausmaq Methodology ‘Reasonable’ Amount Scenario A
Castle /
Concessions
Reasonable
AmountExplanation of Scenario A Scenario B[4] Total for Professional Costs: Deduct from $34,978,147.15 the following amounts:
(a) $1,597,380.02 (Castle paras 262-8)
(b) $643,160.00 (Castle 269-286)
(c) $1,700,000 (Costs after stay – see paras 268-275 of plaintiff’s submissions.
(d) $723,736.35 (Castle’s reduction based on rates)
Total: $30,313,871
Reduce this amount by 50% (see paras 394 – 403 of the plaintiff’s submissions and Castle’s evidence at T 379-80, 438, 444, 467)
Note that this does not take into account differing view on allowable rates (paras 288 – 298 of the plaintiff’s submissions) or the other difficulties with the starting position (paras 183 – 202 and 245 – 267 of the plaintiff’s submissions)Conduct Money Scenario 1 of defendants’ annexure 13 Subpoena Fees Scenario 1 of defendants’ annexure 13 eLaw Joint Experts’ Report Transcript Joint Experts’ Report Counsel’s Fees Deduct from $10,850,852.33 the following amounts:
(a) $200,560 (not claimed)
(b) $193,387 (excluded by costs orders)
Total: $10,456,904.82Apply same percentage reduction as to solicitors (Castle T 455.5 - .16)
Note that this does not take into account differing views on allowable rates (paras 433 – 438 of the plaintiff’s submissions) or the other difficulties with the starting position
Expert Statements Treat the same as counsel’s fees (Castle T 446.38 - .44) Scenario 1 of defendants’ annexure 13
Photocopying Scenario 1 of defendants’ annexure 13 Colour Photocopying Not shown in defendants’ annexure 13 Binding Not shown in defendants’ annexure 13 Fares and Travelling Scenario 1 of defendants’ annexure 13 Disbursements incurred by Freehills (Perth and Melbourne) Not shown in defendants’ annexure 13 Court Fees Joint Experts’ Report Rent (Macquarie Street) See paras 576 – 583 of plaintiff’s submissions.
Not shown in defendants’ annexure 13Process Service Not shown in defendants’ annexure 13 Search Fees Not shown in defendants’ annexure 13 Facsimiles Not shown in defendants’ annexure 13 Couriers Not shown in defendants’ annexure 13 Telephone (Mobile and IDD) Not shown in defendants’ annexure 13 Total for Disbursements Grand Total
30 January 07 revised Modified Table P
END NOTES
[1] The professional costs comprise Professional Fees of the Sydney office of $34,807,490.55 and the Melbourne and Perth Offices of $170,656.60.
[2] Total of $22,609,700.19 comprises amounts claimed in Australian dollars of $11,304,649.60 plus amounts converted to Australian dollars from foreign currencies of $11,305,050.59 contained in Table B.
[3] The total of $480,514.54 comprises the amount for Airfares in Table K of $314,285.92 plus the Allowance for Living and Accommodation of $134,461.67 in Table N and the allowance for Taxi Fares in Table L of $30,466.95.
[4] Scenario B is the same as Scenario A except that the reduction to Professional Costs, Counsel’s Fees and Expert Statements is 70%, to reflect common sense, analogies and the reductions in the MLC costs and in respect of the Simon Moore Statement
411
31
8