Pathway Investments Pty Ltd v National Australia Bank Ltd
[2012] VSC 97
•21 March 2012
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
LIST A
No. 6249 of 2010
| Pathway Investments Pty Ltd (ACN 072 420 065) | First Plaintiff |
| Doystoy Pty Ltd (ACN 130 593 609) | Second Plaintiff |
| v | |
| National Australia Bank Limited (ACN 004 044 937) | Defendant |
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JUDGE: | Davies J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 6 February 2012 | |
DATE OF JUDGMENT: | 21 March 2012 | |
CASE MAY BE CITED AS: | Pathway Investments Pty Ltd & Anor v National Australia Bank Limited | |
MEDIUM NEUTRAL CITATION: | [2012] VSC 97 | |
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COSTS – Security for costs – Application by the defendant pursuant to r 62 of the Supreme Court (General Civil Procedure) Rules 2005 (Vic) and s 1335(1) of the Corporations Act 2001 (Cth) for security for costs in the proceeding – Dispute as to quantum of security sought – Whether security for costs can be obtained in respect of costs incurred before the commencement of proceedings in anticipation of the proceedings being initiated – Where the defendant engaged interstate solicitors – Whether defendant entitled to security for costs calculated on interstate scale – Whether evidence supporting the application about the work undertaken or likely to be undertaken was sufficient to enable the Court to fix an amount by way of security for costs – Whether in determining quantum the Court should take into account the obligations of legal practitioners under the Civil Procedure Act 2010 (Vic) with respect to the conduct of litigation – Whether the period for which security is sought is excessive – Whether defendant entitled to security for costs up to trial – Discount for the contingency that the proceeding will settle before trial – Supreme Court (General Civil Procedure) Rules2005 (Vic), rr 62, 63.29, 63.34 and 63.44 – Civil Procedure Act 2010 (Vic) – Corporations Act 2001 (Cth), s 1335(1) – Legal Profession Act 2004 (NSW), s 364
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | M B J Lee SC F Forsyth | Maurice Blackburn Lawyers |
| For the Defendant | WA Harris SC D Thomas | Freehills Lawyers |
HER HONOUR:
Introduction
The defendant (“NAB”) has applied under Order 62 of the Supreme Court (General Civil Procedure) Rules 2005 (Vic) (“SCR”) and s 1335(1) of the Corporations Act 2001 (Cth) (“the Act”) for an order that the plaintiffs give security in an amount of $11m for its costs incurred, and to be incurred, in the proceeding up to the date of trial. The plaintiffs do not dispute that some security for costs should be given, as this is a class action in which the plaintiffs are supported by a litigation funder and the litigation funder has agreed to provide reasonable security for NAB’s costs of the proceeding. However, the plaintiffs dispute the quantum of security that is sought, which they describe as “extraordinary in size and unprecedented in Australian legal history”.[1] They have raised several bases of opposition to the making of an order and seek the dismissal of the application. The bases of opposition are conveniently identified and dealt with under relevant headings.
[1]Plaintiffs’ Outline of Submissions, [10].
Pre-commencement costs
The quantum sought by way of security is in part explained by the inclusion in the figure of $11m of an amount of $1,627,442 for estimated party/party costs that NAB has incurred for legal work done on its behalf before the class action was filed with the Court on 18 November 2010 (“the pre-commencement costs”). NAB was put on notice of the class action at the latest by June 2009, following various media announcements from Maurice Blackburn, the solicitors for the plaintiffs, that a class action would be commenced against NAB on behalf of NAB shareholders who had acquired NAB shares between 1 January 2008 and 24 July 2008, in respect of alleged non-disclosures relating to NAB’s exposure to a portfolio of instruments known as collateralised debt obligations (“CDOs”). NAB reacted promptly by retaining the Sydney office of Freehills solicitors (“Freehills Sydney”) to undertake preparatory work and thereby incurred legal costs referrable to the action in anticipation that it would be brought. NAB argued that it should have security for its pre-commencement costs, given that pre-commencement costs are allowable as between party and party on a taxation of costs under r 63.29 of the SCR.
Rule 63.29 of the SCR provides that:
On a taxation on a party and party basis all costs necessary or proper for the attainment of justice or for enforcing or defending the rights of the party whose costs are being taxed shall be allowed.
Authorities on r 63.29 (and cognate provisions) make it clear that costs of a party allowable as between party and party are not necessarily limited to work done once the proceeding is commenced because the basis for the allowance is whether the costs were “necessary or proper”.[2] Legal costs incurred for work undertaken in reasonable anticipation of litigation in principle can be allowable[3] although the simple fact that the costs were so incurred does not mean that they will be allowable on taxation.[4] Such costs must be shown to have been “necessary or proper for the attainment of justice” and the satisfaction of that test requires some real relationship between the work done and the subject matter of the litigation, once commenced.[5] Whether that can be shown will be fact specific to the particular case. As Professor G E Dal Pont wrote in the Law of Costs:
Drawing the line between what is, and what is not, allowable on taxation in respect of pre-proceedings costs, is not capable of precise determination simply by statements of principle; the matter remains based in the discretion of the taxing officer dependant upon the particular facts of each case.[6]
Moreover, whether the Court has the power under r 62.02 of the SCR or s 1335 of the Act to order security for such costs is a separate question to whether pre-commencement costs may be allowable on a taxation.
[2]Samson Capital Pty Ltd v Westpac Private Equity Pty Ltd [2007] VSC 453. See also Société Anonyme Pêcheries Ostendaises v Merchants' Marine Insurance Co [1928] 1 KB 750; Scheff v Columbia Pictures Corp Ltd [1938] 4 All ER 318; Frankenburg v Famous Lasky Film Service Ltd [1931] 1 Ch 428; [1930] All ER Rep 364; Schweppes Ltd v Archer (1934) 34 SR (NSW) 178; Re Gibson's Settlement Trusts; Mellors v Gibson [1981] Ch 179; [1981] 1 All ER 233; Admiral Management Services Ltd v Para-Protect Europe Ltd [2003] 2 All ER 1017; [2002] 1 WLR 2722.
[3]The Perpetual Executors’ and Trustees Association of Australia Limited v The Colonial Mutual Fire Insurance Company Limited (1904) 29 VLR 427, 431 (Holroyd J).
[4]In re Gibson’s Settlement Trusts [1981] 1 Ch 179; Higgins v Nicol & Ors (No 2) [1972] 21 FLR 34, 37 (Spicer CJ and Smithers J).
[5]In re Gibson’s Settlement Trusts [1981] 1 Ch 179.
[6]G E Dal Pont, Law of Costs (2003) 549 at [17.3].
The plaintiffs argued that the Court has no power under r 62.02 of the SCR or under s 1335(1) of the Act to order security for pre-commencement costs as pre-commencement costs are not “costs of the defendant” countenanced by either provision. Rule 62.02(1) provides relevantly that:
Where –
…
(b)the plaintiff is a corporation or (not being a plaintiff who sues in a representative capacity) sues, not for his own benefit, but for the benefit of some other person, and there is reason to believe that the plaintiff has insufficient assets in Victoria to pay the costs of the defendant if ordered to do so;
…
the Court may, on the application of a defendant, order that the plaintiff give security for the costs of the defendant of the proceeding and that the proceeding as against the defendant be stayed until the security is given.
Section 1335(1) of the Act in turn provides:
Where a corporation is plaintiff in any action or other legal proceeding, the Court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in his, her or its defence, require sufficient security to be given for those costs and stay all proceedings until the security is given.
Although the wording of the provisions is different, the applicable principles for the grant of security for costs are the same, whether r 62.02 of the SCR or s 1335(1) of the Act is relied on as the source of power.[7]
[7]Livingspring Pty Ltd v Kliger Partners (2008) 20 VR 377 at [10] (Maxwell P and Buchanan JA).
The plaintiffs argued that the expression “costs of the defendant” in s 1335(1) of the Act should therefore be read as “costs of the defendant of the proceeding”, using the wording of r 62.02(1) of the SCR. The submission was that both the rule and the statutory provision pre-supposed that if security is ordered in respect of the costs of the defendant, there cannot be a defendant without a proceeding and that there cannot be “costs of a proceeding” without a proceeding. Thus, the argument went, there is textual support for a construction of those provisions as authorising security for costs of the defendant incurred after the commencement of the proceeding but not for pre-commencement costs.
The question of whether pre-commencement costs may be the subject of an order for security for costs has not been judicially considered in Australia. The issue was raised in Spatialinfo Pty Ltd v Telstra Corporation Ltd[8] but Registrar Efthim (as His Honour then was) did not make a finding on whether security could be ordered. His Honour took the view that he should refrain from ordering such security in the absence of authority that the Court had the power to grant security for pre-commencement costs.[9] In that case, an order of the Court was sought for pre-commencement costs in circumstances where prior to the commencement of the proceedings the parties had engaged in extensive and protracted correspondence, demands and negotiations. The respondent had incurred pre-commencement costs in responding to: (a) threats by the applicant to commence proceedings for injunctive relief (of the very kind that were ultimately commenced); and (b) requests by the applicants for documents and information. The respondent argued that there was no reason why any final costs ruled in its favour (assuming that it was successful at trial) would not include such costs and accordingly that as a matter of principle, security should be given for such costs.
[8]Unreported, Federal Court of Australia, Registrar Efthim, 11 July 2005.
[9]Spatialinfo Pty Ltd v Telstra Corporation Ltd, unreported, Federal Court of Australia, Registrar Efthim, 11 July 2005 at [12], [13] and [14].
Researches have found one English case on point. In Lobster Group Ltd v Heidelberg Graphic Equipment Ltd,[10] a decision of the Queens Bench Division of the High Court of Justice, Coulson J held that a security order could be made for pre-commencement costs. However, His Honour refused to make that order in the exercise of his discretion, principally for the reason that a large portion of the pre-action costs related to the costs of a pre-action mediation which His Honour held were not “costs of and incidental to the proceedings”, but rather costs incurred in pursuing a valid method of alternative dispute resolution.[11] His Honour also took into account the lengthy delay between the incurring of the pre-action cost and the application for security based on that item of cost, holding that it would be “unnecessarily draconian” “after all this time” to require the claimant to provide security for those costs.[12] Nonetheless, His Honour did not doubt that he had the power to order security for pre-commencement costs. His Honour reasoned as follows:
In certain circumstances, the costs incurred by a party prior to the commencement of litigation can be recovered as costs: see In re Gibson’s Settlement Trusts [1981] 1 Ch 179. In a more recent example of that principle, in McGlinn v Waltham Contractors [2005] 3 All ER 1126, this court concluded that the costs incurred by a party in complying with any pre-action protocol were capable of being costs “incidental to” any proceedings which were subsequently commenced (if the protocol procedure failed to lead to an early settlement) and that they were therefore covered by s 51 of the Supreme Court Act 1981. However, in that case, the court refused to award a defendant costs thrown away at the pre-action protocol stage in successfully persuading a claimant to abandon particular heads of claim. It was held that those were not costs “incidental to” any subsequent proceedings because, in those subsequent proceedings, such heads of claims did not feature at all.
It seems to me, therefore, that as a matter of principle, pre-action costs can be the subject of an application for security. That said, I consider that a court should be slow to exercise its discretion in favour of the applicant in such circumstances, because of the risk that, if the pre-action period was lengthy, the costs might be extensive, and any subsequent attempt to obtain security in respect of such costs might become penal in nature. Moreover, it must be right that, the greater the distance in time between the incurring of the costs and the commencement of proceedings, the greater will be the likelihood that the losing party will have good grounds to dispute its liability to reimburse such costs in any event, and/or will have a stronger argument to the effect that the court should not exercise its discretion under CPR 25 and order security in respect of such historic costs.[13]
It is sufficiently clear from this passage that His Honour was of the view that pre-action costs were capable of being the subject of security because such costs were capable of recovery in a proceeding.
[10][2008] EWHC 413 (TCC).
[11]Lobster Group Ltd v Heidelberg Graphic Equipment Ltd [2008] EWHC 413 (TCC) at [15]-[21], [27].
[12]Lobster Group Ltd v Heidelberg Graphic Equipment Ltd [2008] EWHC 413 (TCC) at [26], [27].
[13]Lobster Group Ltd v Heidelberg Graphic Equipment Ltd [2008] EWHC 413 (TCC) at [11], [12].
In my view, a like conclusion should be reached here. The textual context does not mandate a construction that pre-commencement costs do not fall within the scope of costs, which may be the subject of an order for security for costs under r 62.02 or
s 1335. Quite plainly, pre-commencement costs incurred in anticipation of litigation could not be recovered under r 63.29 (and cognate provisions) unless a proceeding was actually instituted and an award of party/party costs made by the Court. A party could not obtain security for pre-commencement costs unless there was a proceeding. But if proceedings are initiated, an award of party/party costs made in that proceeding will include pre-commencement costs that satisfy the “necessary or proper” test in r 63.29 of the SCR (and cognate provisions) as such costs fall within the scope of costs allowable under taxation.[14] As there is a power to allow pre-commencement costs on a taxation of party/party costs, I can see no reason why such costs are not “costs of the defendant of the proceeding” or “costs of the defendant” for the purposes of the security for costs provisions, taking into consideration that the purpose of a security for costs order is to ensure the effective enforcement of a party/party costs order that the Court may make in favour of the defendant, if successful.[15] Accordingly, I have concluded that the Court does have power under r 62.02 and s 1335(1) to order security for pre-commencement costs but it is a separate question whether the Court, on NAB’s application, should exercise that power in its discretion.
[14]Cf Comcare v Con Labathas (1995) 133 ALR 744.
[15]Oshlack v Richmond River Council (1998) 193 CLR 72 (McHugh J).
Costs of interstate solicitors
The $11m sought by way of security has been calculated in accordance with assessments of costs in NSW on the “ordinary basis”, which is the standard basis on which inter parties costs are awarded. There is a potential difference in the party/ party costs that may be available to NAB on a taxation (assuming that it successfully defends the proceeding) depending on whether party/party costs are taxed on the NSW basis or in accordance with the applicable Victorian scale. The plaintiffs argued that there is a threshold question in this proceeding as to whether it was “necessary or proper” for NAB to engage Sydney solicitors for each aspect of the work performed. This submission was supported by an affidavit of Mr Varghese, a principal of Maurice Blackburn who has the carriage of the proceeding on behalf of the plaintiffs.[16] Based on that evidence, it was contended that in determining the quantum of security to be provided, the Court should have regard to the fact that NAB has chosen to instruct NSW solicitors to conduct most of the substantive work when: (1) in the period before proceedings were commenced, NAB had no reason to assume the proceedings would be issued in NSW; (2) it is likely that many witnesses in Australia who will be called to give evidence are, or were, located in Melbourne; (3) it is likely that relevant documents in NAB’s possession located in Australia are, or were, located in Melbourne; and (4) Freehills in Melbourne (“Freehills Melbourne”) has partners with substantial experience in class action litigation. Reliance was also placed on the fact that Maurice Blackburn is based in Melbourne and it was submitted that NAB should have anticipated that proceedings would be instituted in Melbourne, not in some other jurisdiction. Amongst other things, the press releases issued by Maurice Blackburn in May and July 2010 stated that the class action would be filed in the Federal Court in Melbourne.
[16]Affidavit of Jacob Isaac Noozhumurry Varghese affirmed 19 December 2011.
I do not accept the submission for the plaintiffs that the amount of security should be based on costs incurred by NAB assessed in accordance with the scale of costs applicable in Victoria. There are two principal reasons.
The first reason is that the evidence was that NAB has used Freehills Sydney as its solicitors over a period of fifteen to twenty years and in some of the largest litigation in which the bank has been involved. This longstanding relationship is relevant to the Court’s consideration of the reasonableness of NAB engaging Sydney solicitors at the outset, when it first became aware of the proposed class action, and particularly in the circumstance where there was no indication at that time that proceedings were to be issued in Melbourne. It is also relevant that NAB was not put on notice until some twelve months later that the class action would be commenced in Melbourne, and even then it was foreshadowed that the class action would be issued in the Federal Court. NAB’s expert cost consultant, Ms Harris, stated that if a matter is conducted in the Federal Court, the location of the solicitors acting on behalf of a party only becomes relevant to the extent that unnecessary travel costs are incurred as the professional costs allowed are the same, no matter where the solicitors are located in Australia.[17] In that circumstance it was not unreasonable for NAB to continue to use Freehills Sydney, given that in the Federal Court the applicable Federal Court scale applied to legal costs is the same, wherever the solicitors are located within Australia. Had the proceedings been issued in the Federal Court, it would not have made any difference whether NAB used the Sydney or Melbourne offices of Freehills.
[17]Exhibit EMH-1 to the affidavit of Elizabeth Mary Harris sworn 18 November 2011 at [8].
The second reason for rejecting the submission is that proceedings were not initiated until some eighteen months after the initial announcement from Maurice Blackburn about the proposed class action. The evidence bears out that, by then, Freehills Sydney had undertaken a substantial amount of work on behalf of NAB in anticipation of the commencement of the proceeding. In those circumstances, I would not conclude that it was either improper or unreasonable for NAB to continue to retain Freehills Sydney, and not then to engage Freehills Melbourne.
Once it is concluded that charges for work done by Freehills Sydney are claimable under r 63.29 of SCR, r 63.44 of the SCR prescribes that those charges must, as far as practicable, be allowed “in an amount appropriate to the place where the lawyer practises”: viz, in the present case, NSW. In Samson Capital Pty Ltd v Westpac Private Equity Pty Ltd[18] Hargrave J permitted the recovery of the costs of Sydney solicitors in Victorian proceedings. His Honour held that the specific terms of r 63.44 “should be given their plain meaning”. His Honour further noted that the structure of rr 63.29, 63.34 and 63.44 demonstrated:
[18][2007] VSC 453.
… a clear intention that the taxing master should allow, so far as practicable, the costs of lawyers practising in a place out of Victoria at rates which would be allowable on a party and party assessment in that place.[19]
Hargrave J also stated that his interpretation of r 63.44 was consistent with a number of authorities dealing with the costs of interstate practitioners in other jurisdictions.[20] However, His Honour expressed the caveat that:
This interpretation of r 63.44 does not mean that all of the work performed by the defendant’s Sydney solicitors will, if it is successful and obtains a cost order, necessarily be allowed at the rates applicable in New South Wales. Although I am satisfied that it was reasonable for the defendant to engage Sydney solicitors as its principal solicitors in this proceeding, the taxing master’s discretion under r 63.29 should nevertheless be exercised for each item, or class of items, which it is claimed should be allowed. That is, in cases such as this the taxing master will ordinarily consider whether it was “necessary or proper for the attainment of justice or for enforcing or defending the rights of the party” to use the interstate solicitors for that aspect of the work? If so satisfied the charge should, “so far as practicable”, be allowed in the amount appropriate to the place where the lawyer practises. The words “so far as practicable” should be interpreted as meaning “insofar as the taxing master is reasonably capable of doing so on the basis of the evidence and his or her experience”.[21]
Thus NAB, in this application, must still show that items of the costs in respect of which it seeks security would be recoverable in accordance with the test prescribed by 63.29 of the SCR, albeit that they are calculable on the NSW basis.
[19]Samson Capital Pty Ltd v Westpac Private Equity Pty Ltd [2007] VSC 453 at [13].
[20]Samson Capital Pty Ltd v Westpac Private Equity Pty Ltd [2007] VSC 453 at [14].
[21]Samson Capital Pty Ltd v Westpac Private Equity Pty Ltd [2007] VSC 453 at [24].
In the present case, based on Ms Harris’s evidence it would appear that, in any event, there may not be a great deal of difference if the estimated party/party costs are calculated on the NSW basis or calculated on the Victorian scale. Ms Harris calculated NAB’s estimated party/party costs on the NSW basis to be $13,430,446 compared with $13,897,796 on the Victorian scale.[22]
[22]Supplementary report of Elizabeth Harris dated 6 February 2012; Transcript of Proceedings (6/2/2012), 114.
Insufficiency of Evidence
It was argued for the plaintiffs that there was insufficient evidence before the Court about the actual work undertaken and the future work to be undertaken to enable the court to fix an appropriate amount of security for costs. This submission was made recognising that in ordering security for costs the Court does not set out to give complete and certain indemnity.[23] In Quadrant Constructions Pty Ltd v Morgan Smith Barney Aust Pty Ltd[24] Forrest J stated that:
… it is necessary to look at costs both in the broad, as well as scrutinizing the individual items – but not to the extent of minute examination. Descending into too much detail does not assist in the conduct of the exercise because by its nature it is necessarily imprecise and requires guesstimates as much as estimates.[25]
In Bryan E Fencott Pty Ltd v Eretta Pty Ltd,[26] French J stated that the process of estimation embodies to a considerable extent necessary reliance on the “feel” of the case after considering relevant factors.[27] But there must be some substantiation of the likely party/party costs to enable the Court to determine an appropriate amount of security based on estimated probable costs, insofar as those costs can be ascertained.[28]
[23]Brundza v Robbie & Co (1952) 88 CLR 171, 175 (Fullagar J).
[24][2009] VSC 455.
[25][2009] VSC 455 at [56].
[26][1987] 16 FCR 497.
[27]Bryan E Fencott Pty Ltd v Eretta Pty Ltd [1987] 16 FCR 497, 515.
[28]Procon (Great Britain) Ltd v Provincial Building Co Ltd [1984] 1 WLR 557, 565 (Cumming-Bruce L.J.); Saint-Gobain RF Pty Ltd v Maax Spa Corporation Pty Ltd [2004] VSC 335 at [71]; Quadrant Constructions Pty Ltd v Morgan Smith Barney Aust Pty Ltd [2009] VSC 455 at [54].
The actual work undertaken to date and the expected future work to be undertaken was the subject of affidavit evidence from Mr Betts, a partner in the litigation group of Freehills who, together with another of his partners, Mr Healy, has the carriage of the proceedings on behalf of NAB. In his affidavit, Mr Betts sets out the broad categories of work which he divided into Phase 1 and Phase 2. Phase 1 has two parts: work performed from 3 June 2009 to 17 November 2010 (Part A) and work performed from 18 November 2010 to 30 September 2011 (when the security for costs application was foreshadowed) (Part B). Phase 2 describes the work to be performed from 1 October 2011 up to the commencement of trial. Mr Betts divided Phase 2 into six parts, being:
Part 1 – discovery
Part 2 – lay and expert evidence
Part 3 – interlocutory applications
Part 4 – ongoing work with counsel
Part 5 – mediation
Part 6 – preparation for final hearing.[29]
[29]Affidavit of Jason Lawrence Betts sworn 16 November 2011 at [69], [139].
For each broad category of work already performed, Mr Betts gave a general description of the nature of that work, the hours spent by the relevant practitioners performing that work and their charge-out rates, the approximate professional legal costs which NAB incurred and the approximate disbursements which NAB incurred. All Phase 1, Part A work was performed by solicitors in Freehills Sydney. Of the total approximate amount of work performed by Freehills in Phase 1, Part B less than 5% (by hours) was performed by a senior associate and graduate based in Freehills Melbourne.[30]
[30]Ibid at [100], [136].
For each broad category of work that Mr Betts expects will be required to be performed up to the trial of the proceedings, Mr Betts has identified the nature of the work, the likely number of hours to be spent performing the particular tasks, the level of seniority of the legal representative who would be allocated to complete the task and the likely professional fees and disbursements that will be charged for that work. Mr Betts states in his affidavit that it is not possible at the present time to estimate costs with precision, given the complexity of the proceedings and the difficulty in identifying the amount of time and resources which will ultimately be required for work at each stage of the proceedings. Mr Betts explained that this is because of:
(a) the range of complexity of the issues of fact and law in the Proceedings;
(b)the events the subject of the Proceedings occurred over 3 years ago and involve potential lay witnesses in several jurisdictions, a number of whom are no longer employees of NAB – this, of itself, will make locating some witnesses and documents, and the preparation of lay evidence generally, time consuming and difficult;
(c) the fact that the amount of work to be completed is, to some extent, contingent upon factors which are not within NAB’s control such as the final scope of discovery to be agreed with the Plaintiffs, whether Group Members will be required to provide discovery, the volume of evidence to be filed by the Plaintiffs in the Proceedings and the quantum of damages sought by the Plaintiffs and Group Members, which will be the subject evidence.[31]
[31]Ibid at [141].
NAB’s expert cost consultant, Ms Harris, was instructed that she was to have regard to that affidavit, and to the estimates and assumptions set out in that affidavit, for the purpose of her expert report. Ms Harris considered that the information available to her in Mr Betts’ affidavit was sufficient to enable her to produce an estimate of the likely party/party costs on the basis of how they would be assessed in NSW but that to undertake a “full estimate” of the costs she needed to review Freehills’ file covering the period since 3 June 2009, which was not made available to her because many parts of the file were privileged and NAB did not want to risk waiving privilege, given that the proceedings are ongoing.
On the other hand, the plaintiffs’ expert, Mr Matters, was of the view that no estimate can be given of those costs on the basis of the content only of Mr Betts’ affidavit, if quantified in accordance with the NSW rates. Mr Matters would not provide an opinion on the question asked of him:
On the basis of the material provided to you, what is your assessment of the party/party costs that would be recoverable by the defendant in the event of a judgment in its favour in the proceedings?
“for [the] reason that it requires knowledge that [he did] not have”.[32]
[32]Exhibit RPM-1 to the affidavit of Roland Patrick Matters sworn 20 December 2011 at [5].
The plaintiffs also obtained an opinion from another costs consultant, Mr Linsdell, who was asked to give an estimate of likely party/party costs on the Victorian scale. Mr Linsdell also stated that the Betts’ affidavit did not provide sufficient detail to enable a concluded and precise estimate of the costs to be provided,[33] although he went on to “attempt to provide a guide as to the manner in which the broad categories of costs would be approached by the [Victorian] Costs Court based on the Scale and [his] experience in Taxations”.[34]
[33]Exhibit PGL-2 to the affidavit of Paul Grant Linsdell sworn 19 December 2011 at [9].
[34]Ibid at [44].
It is necessary to examine the reasoning of each expert in some detail in order to reach a view about the sufficiency of the evidence before the Court in support of the security for costs application about the actual work undertaken and the future work to be undertaken.
(a) The Harris report
Ms Harris stated that the two bases of costs assessment in NSW are the “ordinary basis” which Ms Harris adopted in her report, which is the standard basis on which inter partes costs are awarded, and the “indemnity basis”. There is no scale of costs but s 364(1) of the Legal Profession Act 2004 (NSW) (”LPA NSW”) details the factors which a cost assessor must consider in assessing costs on an ordinary basis:
(a).whether or not it was reasonable to carry out the work to which the costs relate; and
(b).whether or not work was carried out in a reasonable manner; and
(c).what is a fair and reasonable amount of costs of the work concerned.
Section 364(2) of the LPA NSW sets out discretionary factors that the assessor may take into account:
(a). the skill, labour and responsibility displayed on the part of the Australian legal practitioner or Australian-registered foreign lawyer responsible for the matter;
(b). the complexity novelty or difficulty of the matter;
(c). the quality of the work done and whether the level of expertise was appropriate to the nature of the work done;
(d). the place where and circumstances in which the legal services were provided;
(e). the time within in which the work was required to be done;
(f). the outcome of the matter.
Ms Harris stated that the mandatory and discretionary factors are very close to those that must be considered in Victoria when assessing practitioner/own client costs.[35]
[35]Exhibit EMH-1 to the affidavit of Elizabeth Mary Harris sworn 18 November 2011 at [18].
In Ms Harris’ experience the approach taken to costs assessments in NSW is to consider: (1) the solicitors’ hourly rates and whether or not they were reasonable in the circumstances of the case; (2) whether or not it was reasonable to undertake the work; and (3) whether the work was undertaken by the appropriate level of practitioner, in a reasonable manner and whether the time spent was reasonable.[36] Ms Harris opined that that this is the same approach that is adopted in assessments of costs between solicitors and clients in the Victorian Supreme Court and in assessment of costs of trustees in bankruptcy although the test for allowing such costs “is more generous than the ordinary basis”.[37]
[36]Ibid at [19].
[37]Ibid at [20].
Ms Harris employed a “gross sum methodology” in estimating NAB’s likely party/party costs, on the assumption that because of the size of the litigation and the quantum of costs involved, a NSW Court would order costs of a specified gross sum[38] rather than making an order for costs of an unspecified sum which would require those costs to be quantified by way of cost assessment under Part 3.2 of the LPA NSW. Ms Harris stated that in assessing costs on a gross sum basis the methodology adopted must be one that enables the Court to be confident that the approach taken to determine those costs is logical, fair and reasonable.[39] Ms Harris noted that it has been held to be appropriate to take a broad brush approach ensuring that the methodology seeks to prevent, on the one hand, prejudice to the party paying costs by overestimating the costs and, on the other hand, injustice to the party recovering costs by adopting an arbitrary “fail safe” discount across the board on the costs claimed.[40] In considering the solicitors’ rates likely to be allowed for work undertaken by Freehills Sydney, Ms Harris used her experience of assessment of costs in NSW and her experience of rates charged by commercial litigation lawyers in top tier and mid tier law firms “in cases equivalent to the present, as market rates are a guide to reasonableness”.[41]
[38]The power is contained in s 98 (4) of the Civil Procedure Act 2005 (NSW).
[39]Beach Petroleum NL & anor v Johnson& Ors (No 2) (1995) 57 FCR 119, 123.
[40]Leary v Leary [1987] 1 WLR 72.
[41]Exhibit EMH-1 to the affidavit of Elizabeth Mary Harris sworn 18 November 2011 at [22].
Ms Harris “broadly” adopted what she termed the “Ausmaq” methodology used by the cost experts in Idoport Pty Ltd v National Australia Bank Limited[42]. That methodology is intended to produce a gross sum amount which is a fair and reasonable estimation of party/party costs. Ms Harris set out the methodology in her first report:
43.The first step is identification of the actual costs which have been incurred. The second step involves exclusion of any work which is outside the scope of the costs order. In the present case, there are no interlocutory cost orders adverse to the defendant and therefore no discount will apply. As a result of this second step the “claimable costs” are identified.
44.In the third step, claimable costs are separated into “claimable professional costs” and “claimable disbursements” and, if appropriate, a reduction is applied to each of these categories to account for work which was unreasonably or unnecessarily incurred (“non party/party reduction”).
45.The fourth step involves a consideration for the appropriate hourly rates to be applied to claimable professional costs and counsel’s fees.
46.The final step involves calculations based on the hourly rate options, and the non party/party reduction, with the addition of allowances for disbursements other than counsel’s fees.[43]
[42][2007] NSWSC 23.
[43]Exhibit EMH-1 to the affidavit of Elizabeth Mary Harris sworn 18 November 2011 at [43]-[46].
(b) The Matters report
Whilst Mr Matters agreed with Ms Harris’s assumption that a NSW Court would exercise its power to make a gross sum costs order, he was of the view that Mr Betts’ affidavit did not provide sufficient information to enable a reliable opinion to be formed.
First he expressed the view that the content of Mr Betts’ affidavit did not provide sufficient information as to what had been produced and recorded by Freehills to make time spent and hourly rates a reliable basis on which to provide an opinion as to a fair and reasonable amount of costs for NAB’s party/party fees.
Next, he expressed the view that in order for the gross sum methodology used by Ms Harris to constitute an approach that was “logical, fair and reasonable”, Ms Harris needed to have had access to, and to have read in detail or scanned, much of the material produced or received by Freehills in their retainer to the end of September 2011. Mr Matters stated that the expert cost consultant engaged by the solicitors for the successful party in Idoport[44] (who happened also to be Freehills) appeared to have had access to, and to have read in detail or quickly scanned, substantial material produced in the course of that litigation and appeared to have read correspondence produced in that litigation “in a fair amount of detail” and either looked “in a lot of detail” or made a “very quick scan” of the bulk of some 25,000 pages of material produced in the Idoport[45] litigation, including material of a type that Ms Harris did not appear to have been given access to when preparing her first report, including the majority of written communications.[46] Mr Matters then went on to state:
The reason that I hold the opinion stated at paragraph 35 above… is that in my experience the ability to provide opinion that the approach taken to quantification is logical fair and reasonable is dependant in substantial part on an analysis of the comprehensiveness and content of the material on the receiving party’s solicitors’ file. Based on my experience, it is not possible to provide a really reliable opinion in this case that an approach is logical, fair and reasonable only on the content of Mr Betts’ affidavit. That opinion would require the vast bulk of material held on Freehills’ file for the retainer to be either read in a lot of detail or very quickly scanned depending on its content.
As a result I agree with Ms Harris that in not having the file available to her, she could not “undertake a full estimate of such costs”. Moreover, I am of the opinion that no estimate can be given on the basis of the content only of Mr Betts’ affidavit that would constitute an approach that is logical, fair and reasonable.[47]
[44][2007] NSWSC 23.
[45]Ibid.
[46]Exhibit RPM-1 to the affidavit of Roland Patrick Matters sworn 20 December 2011 at [35].
[47]Ibid at [37]-[38].
Mr Matters gave examples of work that Freehills has undertaken (as sworn to by Mr Betts) in relation to which an opinion could not be reliably given to a NSW court as to an approach that is logical, fair and reasonable based only on the content of Mr Betts’ affidavit:
39.1Legal analysis on the potential class action … Mr Betts has sworn to personnel of Freehills having expended 1,732 hours on analysis of legal issues described by Mr Betts … as “contravention of the ‘continuous disclosure regime’ and misleading and deceptive conduct in relation to NAB’s CDO Portfolio”. Such a description of the legal issues to be analysed is so short that a New South Wales court could not be provided with a reliable opinion of an approach that is just, logical and reasonable based on this description to quantify NAB’s costs of the legal analysis on the potential class action;
39.2Analysis of pleadings & preparation of Defence … Mr Betts has sworn to personnel of Freehills having expended 1,112 hours on such work with no disclosure of the amount of those 1,112 hours that was spent by those personnel attending in each other’s presence if any and if so, the reason that such time was spent. In the absence of this disclosure, a New South Wales court could not be provided with reliable opinion of an approach that is just, logical and reasonable to quantify in NAB’s costs of analysing of pleadings & preparation of NAB’s defence as identification of what work personnel working in each other’s presence are doing and the reason for such work being carried out will be relevant to that approach.
39.3NAB’s lay evidence … Mr Betts has sworn to personnel of Freehills having expended 5,225 hours on such work with no disclosure of what parts of that time related to what prospective issues of fact, the volume of material worked through with these prospective lay witnesses and of the amount of those 5,225 hours by those personnel attending in each other’s presence if any and if so, the reason that such time was spent.[48]
[48]Ibid at [39].
Mr Matters was also critical of Ms Harris’s assessment of likely future costs, repeating that there was insufficient information in Mr Bett’s affidavit on which to form a reliable opinion.[49]
[49]Ibid at [44]-[45].
(c) The Linsdell report
Mr Linsdell was asked to give his assessment of the party/party costs that would be recoverable by NAB in the event of a judgment in the proceedings, calculated in accordance with the Victorian scale. Mr Linsdell would not give a “concluded and precise estimate of the costs”[50] because he was of the opinion that the Betts affidavit did not provide sufficient detail to enable an assessment of costs to be conducted. In his view, there was insufficient material to identify those costs which had been “necessarily and properly” incurred on behalf of NAB.[51] Specifically, that there was an inherent difficulty in determining whether the number of hours said to have been worked by various staff were reasonable, necessary and proper. Mr Linsdell wrote:
37.I have seen no evidence to determine if the work has been performed by a reasonable number of employees, with appropriate delegation and without duplication. Nor have I seen any evidence that all work performed was necessary.
38.In my opinion, the onus to produce material which allows the Court to estimate party/party costs has not been met, where it should have, and was capable of being met, given the costs being considered have already been incurred and are presumably evidenced by the defendant’s solicitors file.
39.This makes it difficult to assess the defendant’s claim for costs based either on the NSW approach or pursuant to [the Victorian] Scale.[52]
[50]Exhibit PGL-2 to the affidavit of Paul Grant Linsdell sworn 19 December 2011 at [9].
[51]Ibid at [29].
[52]Ibid at [37]-[39].
Whilst Mr Lindsell considered that it was a difficult exercise in the absence of material evidencing the actual work done, he was prepared to “attempt to provide a guide as to the manner in which the broad categories of costs would be approached by the [Victorian] Costs Court based on the Scale and [his] experience in Taxations”.[53]
[53]Ibid at [44].
(d) Cross examination
Ms Harris was cross examined on her reports but Mr Matters and Mr Lindsell were not required for cross examination. In cross examination Ms Harris acknowledged that where costs are determined on a time costing basis (as in NSW) and not on scale, the more information about how many people were working on the same task on a file, and what those people were doing in relation to those tasks, the break-up of time allocated across specific items of work and a more detailed description of the work actually done by a particular operator will assist in giving much greater precision to the amount that will be recoverable on a party/party basis.[54] Ms Harris also acknowledged that it would be desirable and appropriate to have access to as much material of a non-confidential nature in order to form her view.[55] She also stated that she invariably finds that there are great difficulties in assessing costs of top tier firms on a party/party basis and reducing the relevant amounts to scale because there may be multiple practitioners working on the same task, operators record time for a large variety of tasks in one large block of time without a break up of the time allocated across the specific items of work and because generic descriptions to record work undertaken can make it difficult to ascertain what work was actually done.[56]
[54]Transcript of Proceedings (6/2/2012), 99–100.
[55]Ibid, 100.
[56]Ibid, 98.
(e) Decision
It was submitted for the plaintiffs that the Court should accept the unchallenged opinions of Mr Matters and Mr Linsdell that the application was not supported by sufficient information on which to provide an opinion on NAB’s likely party/party costs. It was also submitted that the evidence showed that Freehills could have put better evidence before the Court of the work actually done, as Mr Betts had acknowledged in cross examination that a ledger of time recordings is available containing identification of people undertaking work, precise tasks, how many people undertook those tasks and the work to be written off.[57] It was argued that it was wrong in principle for NAB to deprive the Court of the best evidence available to determine what work has occurred and what needs to be done in the future and to require the Court, as a consequence, to guess or engage in broad brush speculation of a proper sum.
[57]Ibid, 64.
It was submitted for NAB that if a highly respected and experienced cost practitioner such as Ms Harris was of the view that the material provided to her allowed her to make an estimate of recoverable party/party costs and that as she had provided a careful and considered explanation of her reasoning process, then the submission that the material is insufficient to found an order for security must fail.
The Court, in exercising its discretion, is not required to give the party seeking the security full protection for its estimated party/party costs.[58] The process does not envisage a full assessment of costs but by its nature requires a “broad brush” assessment having regard to the information before the Court.[59] It is clear on the evidence that a concluded and precise estimate of party/party costs cannot be given on the material that is before the Court so that if the task of the Court was to fix a gross sum amount by way of costs, the submission that there is insufficient material on which to base an opinion of those costs would have substance. The task of the Court here is not to fix a gross sum amount but to fix an amount by way of security that is “sufficient”.[60] The Court is not bound to give the amount of security that the party seeking the security estimates to be the amount of its costs, nor must the amount be determined with mathematical precision.[61] Significantly, Mr Matters did not cavil with the methodology that Ms Harris employed in calculating estimated costs on a gross sum assessment basis but rather his difference of opinion was that no reliable opinion could be formed without a review of Freehills’ file. Mr Linsdell did not have the relevant experience to opine on an estimation of costs on a gross sum assessment basis.
[58]St Gobain IF Pty Ltd v Max Spa Corporation Pty Ltd [2004] VSC 335 at [71] (Habersberger J); Brundza v Robbie & Co (No 2) (1952) 88 CLR 171, 175 (Fullagar J).
[59]Allstate Life Insurance Co v Australia and New Zealand Banking Group Ltd (1995) 134 ALR 187, 201 (Lindgren J), Reinsurance Australia Corp Ltd v HIH Casualty and General Insurance Ltd (in liq) [2003] FCA 803.
[60]Corporations Act 2001 (Cth), s 1335.
[61]Idoport Pty Ltd v National Australia Bank Ltd & Ors [2007] NSWSC 23 at [82].
Whilst the Court must not fix an amount of security without some evidentiary basis for the estimated costs, a precise estimate is not required. In the present case, there is evidentiary foundation underpinning Ms Harris’s estimate of likely costs. The sufficiency of that evidentiary foundation may be reason for the Court looking critically at the estimate that she provided, but I do not accept the submission that the application was based on insufficient information. Nor do I accept the submission that the Court should decline to act on the evidence before the Court by reason that the evidence was not the “best evidence” available to support the application. The evidence showed that Ms Harris had turned her mind to what other material she required in order to express an opinion. Ms Harris took the view that she could express an opinion based on the content of Mr Betts’ affidavit and doubted whether the ledger, once redacted for privileged material, would have been of much assistance to her.
Quantum
NAB’s expert cost consultant, Ms Harris, has assessed party/party costs at $13,430,446 based upon an assessment of those costs on the “ordinary basis” in NSW.[62] NAB accepts that it is common to impose a discount on the security granted in order to reflect the possibility of the proceedings settling[63] and in seeking security of $11m, NAB applied a 15% discount. The amount of security sought represents approximately 50% of NAB’s actual estimated solicitor/client costs up to trial of approximately $20,325,590[64] and approximately 2% of the total damages sought in the class action, which are indicated to be in the region of $450m.[65]
[62]Supplementary report of Elizabeth Mary Harris dated 6 February 2012, 4.
[63]Saint Gobain RF Pty Ltd v Maax Spa Corporation Pty Ltd [2004] VSC 335 at [71] (Habersberger J); Southern Cross Airlines Holdings Ltd (in liq) v Arthur Anderson & Co (unreported, Federal Court of Australia, Drummond J, 6 August 1997).
[64]Affidavit of Jason Lawrence Betts sworn 16 November 2011 at [224].
[65]Cf Procon (Great Britain) Ltd v Provincial Building Co Ltd& anor [1984] 2 All ER 368 at 572 where Griffiths LJ noted that a figure of £6m “may seem a very daunting figure, but it is in fact only approximately three per cent of the sum at stake in this vast litigation”.
Mr Matters did not give any estimation of likely party/party costs.
Mr Linsdell estimated party/party costs on the Victorian scale in a total amount of $3,763,841[66], which is significantly less than Ms Harris’ quantification of estimated party/party costs on the Victorian scale of $13,897,796.[67]
[66]Exhibit PGL-4 to the Affidavit of Paul Grant Linsdell sworn 1 February 2012, 32.
[67]Transcript of Proceedings (6/2/2012), 114.
The discrepancy between Ms Harris and Mr Linsdell reflects their respective views of the sufficiency of the content of the Betts’ affidavit. Both experts have experience in assessing costs in large-scale litigation and each relied upon that experience and brought to bear their independent judgments as cost assessors in forming their opinions of the likely party/party costs based on that material. Ms Harris has taken a more robust view than Mr Linsdell about whether the costs for the work detailed by Mr Betts in his affidavit would be recoverable on a party/party basis. Nonetheless, I accept that Ms Harris took a careful conservative approach to cost assessment generally. I accept also that Mr Linsdell’s reports reflect a considered opinion on his part, qualified by his view that the information available to him did not enable any precise and concluded estimate.
The difficulty caused by the material on which the opinions of Ms Harris and Mr Linsdell are based is that neither expert can be shown to be more precise than the other in respect of their estimates. The assessment of likely costs in such large-scale litigation is not a simple matter and necessarily involves elements of uncertainty. The margin between Ms Harris and Mr Linsdell reflects the difficulty and enormity of the task that the experts faced.
However, there are some factors that indicate that Mr Linsdell’s estimate may understate the likely party/party costs, assuming that they are recoverable in large part on the NSW basis. First, there is no comparative basis between costs recoverable on the NSW basis with the Victorian scale. Secondly, Ms Harris is experienced in assessing costs on the NSW basis whereas Mr Linsdell is not. Thirdly, it is well apparent that the litigation is complex. Ms Harris and Mr Linsdell respectively agreed that a loading of 50% on all professional fees is appropriate in determining the level of security to be given, reflecting the factual and legal complexity of the matter, the skill and care demonstrated by the solicitors, the reliance on counsel and the extent of documents involved in the quantum of the claim, amongst other matters.[68]
[68]Exhibit PGL-3 to the Affidavit of Paul Grant Linsdell sworn 1 February 2012, 3.
However, there are factors that indicate that Ms Harris may have overestimated the likely party/party costs. First, there is a possible issue about duplication of costs. Mr Betts, in cross examination, made it clear that the actual costs invoiced to NAB, and deposed to in his affidavit, had already been pruned back to eliminate charges for duplication of effort and Ms Harris also made allowance for this but duplication cannot be discounted. Next, there is an issue about the reasonableness of the hourly rates of the solicitors and counsels’ fees. Ms Harris applied rates based on her experience but as there is no applicable scale in NSW, there is an uncertainty about the level of fees that may be recoverable. Moreover, NAB has a large legal team acting on its behalf, which includes two Senior Counsel and a Junior Counsel. Senior Counsel for the plaintiffs termed it (non-pejoratively) “Rolls Royce” servicing.[69] Again Ms Harris has made some allowance for what she thought was appropriate for the number of lawyers to be involved in the conduct of the matter and the level of fees that would be allowed, but this is another area of uncertainty. Finally, Ms Harris did not have the benefit of reviewing Freehills’ file so that there is a degree of uncertainty about the reliability of some of the assumptions that she made. Consequentially, I consider that an allowance should be made to Ms Harris’s estimation to factor in those uncertainties.
[69]Transcript of Proceedings (6/2/2012), 49, 85 and (7/2/2012), 136, 162.
The unreasonable quantum sought by way of security for costs
Next, Senior Counsel for the plaintiffs argued that the making of an order for security for costs of the magnitude sought by NAB promotes excessive expenditure of resources and runs counter to the overarching purpose mandated by the Civil Procedure Act 2010 (Vic), which is to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute. It was submitted that NAB had made the strategic decision to defend this proceeding by taking, in effect, every point that it considers is available to it and is pressing the plaintiffs on numerous issues rather than seeking to narrow issues and to minimise costs.
I accept the submission that the principles by which litigation must be conducted, which have legislative force in the Civil Procedure Act 2010 (Vic), should be taken into account by the Court in determining the appropriate amount to be ordered by way of security. Security should not be ordered for the costs of unnecessary and wasteful steps nor should an amount be fixed which is disproportionately greater than what is in dispute. Here the amount of the security sought is very substantial but the estimated costs are not disproportionate to the quantum of the claim, which in early material was projected to be in the realm of $450m.
It was urged that I should take into account that NAB has not adopted an approach that reflects that of a party genuinely seeking to adopt the most economic and efficient way of resolving the dispute. I am not in a position however to form any view about the conduct of this litigation by NAB and do not do so. The proceeding has been case managed by another judge of this Court and I have only a very limited knowledge about the case and the issues that are raised by it. The more compelling criticism of the quantum sought by way of security for costs is the uncertainty about the preciseness of that estimate, which I have expressed already.
The period for which security is sought is excessive
NAB has sought security for its pre-commencement costs and costs up to the commencement of trial. A discount of 15% has been allowed for the contingency that the proceeding will settle before trial, though Senior Counsel for NAB frankly admitted that the discount applied was an entirely arbitrary amount.[70]
[70]Transcript of Proceedings (7/2/2012), 150.
(a) Pre-commencement costs
The obligations now imposed on legal practitioners and their clients prior to the initiation of proceedings to undertake all due and proper steps to endeavour to identify and to narrow down the issues in dispute necessarily require upfront work to be done and, as is evident in a case of this size and complexity, that involves a considerable amount of work. This is an important consideration and it should not be a disabling factor that the pre-commencement costs are substantial, particularly in litigation such as this where NAB was put on notice of the proposed action against it by the plaintiffs’ solicitors more than twelve months before the proceedings were actually issued and NAB responsibly engaged solicitors to act on its behalf at that time. Ms Harris has estimated those costs at $1,177,506, compared with Mr Linsdell’s estimate of $325,000.[71]
[71]Supplementary Report of Elizabeth Harris dated 6 February 2012, 4.
But the mere fact that work was performed in anticipation of proceedings is not decisive that the work was necessary and proper for the purpose of the proceedings nor that such work has not been duplicated. It was argued for the plaintiffs that NAB should not get security for the pre-commencement costs because the Court is unable at this stage to assess whether the relevant work pre-commencement was necessary and proper or may have been duplicated once proceedings issued. I disagree with that submission.
I consider it appropriate to make some allowance for pre-commencement costs but, in my view, I should not accept Ms Harris’s estimation of those costs because of the difficulties at this stage of the proceedings in the Court confidently forming the view that all those pre-commencement costs are likely to be recoverable on a party/party basis. I consider it appropriate to accept Mr Linsdell’s more conservative estimation, albeit based on the Victorian scale.
(b) Costs incurred after the institution of proceedings and prior to the security for costs application
It was argued that NAB should not get security for costs incurred before the application for security for costs was made because NAB did not issue its application for security until about a year after it had foreshadowed making the application. Delay in bringing an application is a factor to be taken into consideration in fixing the quantum of costs,[72] but here the application for security for costs was foreshadowed shortly after the proceeding was instituted. Although it took some time to come on for hearing, there is nothing about this delay in itself, which, in my view, should disentitle NAB from an order for security for costs incurred post-commencement to the date of the application. The plaintiffs were on notice that an application would be made and that a litigation funder was prepared to give reasonable security. The issue between the parties is the amount which is “reasonable” in the circumstances. No prejudice to the plaintiffs has been identified because of the time taken to bring on the application.
[72]Southern Cross Exploration NL v Fire & All Risks Insurance Co Ltd (1985) 1 NSWLR 114.
(c) Costs incurred up to trial
Next, it was argued that NAB should not get security for costs to be incurred right up to trial. In Bryan E Fencott Pty Ltd v Eretta Pty Ltd & Ors[73] French J (as His Honour then was) stated that:
It is clear that the security may extend not only to future costs but also to costs already incurred… In fixing the amount of the security the court must look first at the whole case and take into account, inter alia, the chance of it collapsing without coming to trial.[74]
Parties are now mandated by the Civil Procedure Act 2010 (Vic) to make genuine attempts at settlement. No formal order for mediation has yet been made as the proceedings are still in the relatively early stages of preparation for trial. However, the probability that the matter will be referred to mediation is a relevant consideration in fixing the appropriate sum and there should, in my view, be a substantial discount for the possibility of settlement at an earlier point in time than just prior to trial.
[73](1987) 16 FCR 497.
[74]Bryan E Fencott Pty Ltd v Eretta Pty Ltd & Ors (1987) 16 FCR 497, 515.
Quantum of the discount
I accept the submission for the plaintiffs that the discount of 15% is inadequate. In my view, a substantial discount is warranted because neither Ms Harris nor Mr Linsdell could give a precise estimate of costs based solely on the contents of Mr Betts’ affidavit. The approach taken by each of them to the task of estimating costs on the information available to them highlights the uncertainties attaching to the estimates that they respectively reached. The Court’s power to fix an amount by way of security must be exercised judicially but, as the authorities demonstrate, this may require a broad brush approach and a balancing act between ensuring that adequate and fair protection is provided to the party seeking security and avoiding injustice to the other party. I consider that the amount required to be put up by way of security should be conservatively reached, making due allowance for: (1) the fact that the experts in this case estimated costs on incomplete information; (2) the imprecision in their estimates by reason of the uncertainties; (3) questions about the reliability of some of their assumptions; (4) the margin of difference between them where no significant error in reasoning process has been demonstrated; and (5) the possibility of settlement at a mediation held prior to final preparation for trial. The figure for costs should be Mr Linsdell’s estimation of recoverable pre-commencement costs in the amount of $325,000, a 20% discount on Ms Harris’s estimation of $4,916,308 for the costs for work done since the issue of proceedings, and a 50% discount on Ms Harris’s estimation of $3,909,831 for future likely costs.
The total amount to be ordered by way of security is the amount of $6,212,962 being the sum of $325,000, $3,933,046 and $1,954,916.
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