Australia and New Zealand Banking Group Limited v Paciocco

JUDGES: ALLSOP CJ, BESANKO AND MIDDLETON JJ DATE: 5 JUNE 2015 PLACE: MELBOURNE

Introduction 1 On 8 April 2015, the Court made orders in two appeals, being appeals number VID 141 of 2014 and VID 149 of 2014 respectively. These reasons relate to appeal number VID 149 of 2014 in which the Australia and New Zealand Banking Group Limited is the appellant, and Lucio Robert Paciocco and Speedy Development Group Pty Ltd are the respondents ("the appeal"). The fourth order made in that appeal is in the following terms: 4. The order of the Court made on 19 March 2014 be set aside, and in lieu thereof it be ordered that the applicants pay the respondent's costs of the proceeding at first instance (other than costs, if any, specifically ordered in interlocutory proceedings), subject to any variation that may be made pursuant to application by Mr Paciocco and Speedy Development Group for such variation to be filed and served together with any supporting material on or before 4 pm Monday 13 April 2015. The order made on 19 March 2014 was an order of the primary judge as to the costs of the proceeding before her. Her Honour ordered that there be no order as to costs, including reserved costs. 2 This Court's reasons for judgment for the orders which it made on 8 April 2015 are set out in Paciocco v Australia and New Zealand Banking Group Limited [2015] FCAFC 50. We will refer to those reasons as our earlier reasons. For convenience, we will refer to the respondents to the appeal as Mr Paciocco. 3 Mr Paciocco issued an interlocutory application dated 13 April 2015 seeking a variation of the fourth order made by the Court on 8 April 2015. Subsequently, he sought to amend that application so that the orders he now seeks are as follows: 1. Subject to any order made upon the conclusion of any inquiry ordered following the application referred to in prayer 2, the respondents pay the appellant's costs of the proceeding at first instance (other than the costs of the appellant of and relating to the expert evidence of Dr Finch and Dr Jenkins). 2. There be an inquiry pursuant to Rule 40.06 of the Federal Court Rules 2011 (Cth) as to whether any (and, if so, which) costs of the appellant of and relating to the expert evidence of Mr Inglis in the proceeding at first instance were unreasonably incurred. 3. The respondents' application referred to in prayer 2, be referred for determination by the primary judge (together with the conduct of such inquiry, if so ordered). 4. In the alternative to prayers 1 to 3, that the question of the costs of the proceeding at first instance insofar as they relate to the costs of and relating to the expert evidence of Mr Inglis, Dr Finch and Dr Jenkins, be referred to the primary judge to be determined in accordance with s 43 of the Federal Court of Australia Act 1976 (Cth) and in conformity with the reasons of the Full Court. 5. Such further or other orders as the Court thinks fit. We will grant leave to Mr Paciocco to amend his interlocutory application dated 13 April 2015 in the above terms. 4 Mr Paciocco filed a book containing largely uncontroversial material and written submissions in support of his application. The Australia and New Zealand Banking Group Limited ("the Bank") also filed a book containing largely uncontroversial material and written submissions in opposition to the application. 5 The Court has determined this application on the papers. 6 As will be seen from the orders sought by Mr Paciocco, the matters in dispute on this application relate to the costs incurred by the Bank in retaining Mr Inglis, Dr Jenkins and Dr Finch. Those persons were all experts engaged by the Bank to prepare reports and give evidence at the trial. 7 The costs in relation to Dr Finch and Dr Jenkins are relatively straightforward and we will deal with them first. We say at the outset that there is no reason to refer the question of these costs back to the primary judge. The issues are clear and we are able to resolve them.

Dr Finch 8 In the primary judge's reasons for judgment on the substantive issues (Paciocco v Australia and New Zealand Banking Group Limited [2014] FCA 35 at [169]), her Honour said the following about Dr Finch's report: Dr Finch was engaged by ANZ to report on whether the opinions expressed in the Regan Reports were correct, with specific regard to methodology, provisions and regulatory capital, and to comment on Mr Inglis' approach to those matters. That engagement was inappropriate and unnecessary. Mr Inglis was the appropriate person to reply to the matters raised by Regan. Such matters were in fact addressed by Mr Inglis in the Joint Report. To the extent that Dr Finch was to act as an "adjudicator" between the experts, it was inappropriate that he be appointed unilaterally by ANZ. The Applicants are justified in their concern that Dr Finch's engagement was an attempt to bolster ANZ's expert evidence by weight of numbers or attempt to 'out credential' the Applicants. 9 In the primary judge's reasons for judgment on costs (Paciocco v Australia and New Zealand Banking Group Limited (No 2) [2014] FCA 254 at [3]), her Honour noted that the Bank did not seek its costs of adducing the report of Dr Finch. 10 The Bank did not take the same position in this Court for reasons which are unclear. Nevertheless, the Bank did not advance any persuasive reason in support of the proposition that the costs of retaining Dr Finch should be included in a costs order in its favour. We do not think that those costs should be included.

Dr Jenkins 11 The primary judge did not rely on Dr Jenkins' evidence in deciding the substantive issues before her, and it is clear enough that she was not impressed by her evidence. Her Honour said the following in her reasons for judgment dealing with the substantive issues (at [209]-[210]): ANZ engaged Dr Jenkins, an economist, to provide her opinion on whether "the circumstances surrounding the charging of exception fees" gave rise to the supply of one or more services by ANZ to the Applicants, and if so, what the nature of those services was and what the benefit (if any) was that the Applicants received from those services. Those questions were not directed at the particular Exception Fees charged by ANZ against Mr Paciocco and/or SDG's accounts, and Dr Jenkins did not consider the questions she was asked in relation to Mr Paciocco and/or SDG specifically. Her focus was on a "broader group". As she stated in cross-examination, she "examin[ed] markets at a general level and from that [drew] conclusions about the behaviour of individuals". Dr Jenkins did not seek to identify any of the subjective characteristics of Mr Paciocco, for example, that may have influenced him in wanting the provision of a particular credit facility at any particular time. She did not seek any specific information about him as an individual, or of his motivations. She was not provided with a copy of, and did not read, Mr Paciocco's affidavit. Unsurprisingly, Dr Jenkins' evidence was vague and generalised. It involved a summary of generalised conclusions containing such banalities as "the main characteristic of a service is that it conveys a benefit to the customer", "I find that consumers enjoy several benefits associated with the possibility to go into unarranged overdraft", and "[w]hen a transaction is honoured, consumers benefit from the flexibility of being able to meet wants or needs immediately". Such evidence does not assist the Court. This Court did not rely on Dr Jenkins' evidence in reaching the conclusions it did on the appeal. Mr Paciocco submitted that, in light of those matters, the Bank's costs of retaining Dr Jenkins should be excluded from a costs order in its favour. 12 We do not think that it was improper or in any way unnecessary for the Bank to retain Dr Jenkins or that her evidence was not, on the face of it, relevant to a matter in issue between the parties. We do not think that the fact that ultimately her evidence was not relied on by the primary judge means the costs of retaining Dr Jenkins should be excluded from the costs order in favour of the Bank.

Mr Inglis 13 By way of background, we were told that the costs incurred by the Bank in retaining Mr Inglis were very substantial. To a point, we can see that ourselves from his reports and the nature of the extensive exercise he undertook. Plainly, the tasks carried out by Mr Inglis involved a major undertaking, and the costs incurred by the Bank in retaining him must be considerable. That said, it will be apparent from our earlier reasons that Mr Inglis' evidence was central to the Bank's defence and that ultimately acceptance of his evidence led to this Court upholding the Bank's appeal ([151]-[187]). In addition, it is to be noted that Mr Inglis' evidence was clearly relevant to other claims made by Mr Paciocco. These matters are to be considered in the context of a representative proceeding under Part IVA of the Federal Court of Australia Act 1976 (Cth) ("the Act") where the Bank, if unsuccessful, faced claims giving rise to a very substantial sum. On the face of it, the Bank is entitled to the costs of retaining Mr Inglis. 14 Despite the apparent force of these matters, Mr Paciocco submitted that there was a prima facie or arguable case that the Bank's costs should not include its costs of retaining Mr Inglis. We think that the submission was refined in the written submissions so that it was not that all of the Bank's costs of retaining Mr Inglis should be excluded, but rather a substantial portion of them because there came a point when the Bank should have instructed Mr Inglis to cease further work. 15 We say a prima facie or arguable case because the principal order sought by Mr Paciocco in relation to the Bank's costs of retaining Mr Inglis, was for an inquiry under r. 40.06 of the Federal Court Rules 2011 (Cth) ("the Rules") in relation to the Bank's costs of retaining Mr Inglis. That Rule is in the following terms: 40.06 Costs improperly, unreasonably or negligently incurred A party may apply to the Court for an order: (a) that any costs that have been improperly, unreasonably or negligently incurred be disallowed; or (b) directing an inquiry whether any costs have been improperly, unreasonably or negligently incurred and providing for the costs of such inquiry. Mr Paciocco asks that that inquiry be conducted by the primary judge. 16 In the alternative, Mr Paciocco seeks an order that the question of the Bank's costs of retaining Mr Inglis be referred to the primary judge. Although Mr Paciocco's submissions were largely directed to these two possibilities, he had a full opportunity to address the issue of the Bank's costs of retaining Mr Inglis should this Court deal with the issue. 17 Mr Paciocco developed his submission by reference to a number of events which took place before the primary judge in the associated or allied proceeding involving Mr Andrews (and others) and the Bank (VID 811 of 2010), and then in the proceeding commenced by Mr Paciocco. A summary of these events is as follows. (1) The proceeding between Mr Andrews and the Bank was commenced on 22 September 2010 by a Fast Track Application and Fast Track Statement and, in paragraph 4 of the latter document, the applicants put forward a proposal for the preliminary determination of certain issues. (2) On the same day the Fast Track Application and Fast Track Statement were served on the Bank, the solicitors for the applicants put forward a proposal for a conference between the parties before the initial directions hearing or scheduling conference. (3) On 6 October 2010, the solicitors for the Bank wrote to the Court, with a copy sent to the applicants' solicitors, objecting on various grounds to the proceeding being in the Fast Track List, including an objection on the ground that the case would involve a substantial body of expert evidence. (4) On 11 October 2010, the solicitors for the applicants wrote to the Bank's solicitors stating that there would not necessarily be a dispute requiring, as the Bank had asserted, "a considerable body of accounting, economic and other evidence, involving a number of experts on both sides". (5) At the scheduling conference before a judge of this Court on 4 November 2014, counsel for the applicants said that his clients would be keen to avoid a "huge body of expert evidence" and would be asking the Court to consider the exercise of various powers to achieve that prospect (e.g., a Court appointed expert or a case management conference where admissions might be made). (6) At a further scheduling conference before a judge of this Court on 15 December 2010, the applicants sought orders for the determination of separate questions and the appointment by the Court of an expert. The Bank opposed both proposed orders. The Bank foreshadowed that Mr Inglis might need up to 20 months to assess the operational costs, capital allocation and other funding costs which the Bank considered relevant to its defence of the applicants' claims. At the conference itself, counsel for the applicants suggested that there was unlikely to be a dispute about the quantum of the costs and that the dispute was likely to be about which costs should be brought to account. He suggested the appointment by the Court of an expert and the formulation of questions to be determined before hearing other matters. (7) There was a directions hearing before a judge of this Court on 10 February 2011. Prior to the hearing, the applicants filed written submissions in which they contended: (a) that the exercise to be undertaken by Mr Inglis would involve a great deal of time and money; (b) the Court and the parties must have regard to ss 37M and 37N of the Act; (c) the Court has a number of mechanisms available to it which if exercised would avoid the need for the exercise proposed by Mr Inglis, including the formulation of separate questions on the penalties issue; (d) the types of costs incurred by the Bank which are relevant to the issues in the proceeding could be determined before embarking on the time-consuming and expensive process of calculating the quantum of such costs; (e) if it became necessary to have detailed expert evidence, there should only be one expert and that expert should be appointed by the Court (O 34, r 2 of the Federal Court Rules 1979 (Cth) ("the 1979 Rules")), or the Court should appoint a referee (s 54A of the Act; O 72A of the 1979 Rules). (8) On 10 February 2011, Mr Inglis was examined by the judge (not the primary judge) who then had the proceeding in his docket. It is fair to say that, at the hearing, counsel for the applicants said that, providing some basis was provided for it, the applicants may be prepared to admit the figures that were greater than the Exception Fees, but not that the particular costs, referred to as "full absorption costs" as distinct from "incremental costs", were relevant to the issues in the case. (9) On 22 February 2011, the applicants filed a notice of motion in which they sought an order for the determination of separate questions. (10) On 1 March 2011, the Bank filed an affidavit in the proceeding to which a letter from Mr Inglis dated 13 February 2011 was annexed. Mr Inglis gave an estimate of 13 months to complete his task. (11) The primary judge (now the docket judge) heard submissions on the applicants' notice of motion on 7 March 2011, and judgment was handed down on 19 April 2011: Andrews v Australia and New Zealand Banking Group Ltd [2011] FCA 388; (2011) 281 ALR 113. The primary judge ordered the determination of separate questions, although they were different from the questions proposed by the applicants. (12) At a directions hearing on 5 May 2011, counsel for the Bank told the primary judge that it proposed to instruct Mr Inglis to continue his work while the separate questions were being determined. The primary judge told counsel for the Bank that the Bank should rethink that approach. (13) The primary judge answered the separate questions on 5 December 2011: Andrews v Australia and New Zealand Banking Group Ltd [2011] FCA 1376; (2011) 211 FCR 53. The applicants applied for leave to appeal from her Honour's orders and that application was removed into the High Court. Leave to appeal was granted and her Honour's orders were varied by the High Court on 6 September 2012: Andrews v Australia and New Zealand Banking Group Ltd [2012] HCA 30; (2012) 247 CLR 205. (14) On 14 March 2013, Mr Paciocco commenced the proceeding from which the appeal to this Court was brought. (15) At a directions hearing on 19 April 2013, counsel for Mr Paciocco told the Court that there was unlikely to be a dispute about Mr Inglis' figures as distinct from whether the costs in dispute should be taken into account. (16) The proceeding commenced by Mr Paciocco was heard by the primary judge in December 2013. 18 It is not clear from the written submissions whether Mr Paciocco makes the submission that the Bank should be deprived of its costs of retaining Mr Inglis because an expert should have been appointed by the Court. If that submission is being put, we would reject it. The short answer to the submission is that the Court declined to make such an order. 19 As we have said, the gravamen of Mr Paciocco's challenge related to the scope of the exercise undertaken by Mr Inglis, not the fact that he was retained. Mr Paciocco put two propositions. 20 First, he contended that the Bank should have instructed Mr Inglis to do sufficient work to be able to provide an estimate of the "full absorption costs" and that, when that was done, it should have approached Mr Paciocco to see if the figures (or conclusions drawn from the figures) could be agreed. We reject that submission. As we have said, the Bank faced a very substantial claim. In fact, we note that counsel for Mr Paciocco told the judge at the hearing on 4 November 2010 that he understood that the proceeding was the largest closed-class action in this Court's history. We think that the Bank was entitled to take a careful and cautious approach, and obtain independent evidence central to its defence. Even if there might be circumstances where a party might be at risk as to costs if he or she did not act as Mr Paciocco suggested the Bank should have acted, this is not such a case. There is no evidence that Mr Inglis who, as the Bank submitted, was performing an original exercise, could have proceeded in the manner postulated. Furthermore, as the Bank pointed out, the applicants in the Andrews proceeding and Mr Paciocco in this proceeding never offered an unqualified undertaking to accept Mr Inglis' general conclusions and, in fact, challenged aspects of his conclusions at the trial (see, for example, [138] (use of 2009 financial year said by Mr Regan to be inappropriate) and [162] (challenge to methodology for calculation of collection costs) of the primary judge's reasons on the substantive issues). 21 Secondly, Mr Paciocco contended that Mr Inglis' work included "wasted costs". Insofar as wasted costs refer to the costs potentially saved had Mr Inglis proceeded in the manner postulated in Mr Paciocco's first argument, the argument is rejected for the reasons already given. Insofar as wasted costs might be costs which fall outside the definition of costs as between party and party in the Rules, Mr Paciocco is already protected by the definition and his rights on a taxation. Mr Paciocco did not identify any other wasted costs in his submissions. 22 We see no reason to order an inquiry or to refer the question back to the primary judge, or to exclude the Bank's costs of retaining Mr Inglis from the costs order in its favour. 23 Before concluding, we mention one other matter. Our conclusions and order clearly bind the parties and it is not open to Mr Paciocco to re-agitate those matters. However, we wish to make it clear that nothing we have said impinges on the normal rights of the parties on a taxation of costs. For example, we have already alluded to the definition of costs as between party and party which means only the costs that have been fairly and reasonably incurred by the party in the conduct of the litigation (Schedule 1 of the Rules), and we also note r 40.30 which provides that a taxing officer is not to allow costs that, in his or her opinion, have been incurred or increased through, among other things, unreasonableness. We are not suggesting these rules will or will not be engaged in this case, but simply that they are unaffected by our order and these reasons.

Conclusion 24 For these reasons, we will make the following orders: (1) The respondents have leave to amend their interlocutory application dated 13 April 2015 in terms of the amended interlocutory application attached to their written submissions dated 27 April 2015. (2) Order number 4 made on 8 April 2015 be amended so as to read as follows: The order of the Court made on 19 March 2014 be set aside, and in lieu thereof it be ordered that the applicants pay the respondent's costs of the proceeding at first instance other than the costs, if any, specifically ordered in interlocutory proceedings, and the respondent's costs of the preparation of the expert report of Dr Finch dated 11 November 2013. 25 The respondents should pay 95% of the appellant's costs of the respondents' interlocutory application dated 13 April 2015 as amended. We have reduced the costs slightly to recognise the fact that we have excluded from the costs order in favour of the Bank, the Bank's costs of the expert report of Dr Finch dated 11 November 2013. I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Chief Justice Allsop, Justice Besanko and Justice Middleton.