THE PRESENT APPLICATION
5 By Interlocutory Application filed on 18 March 2014, the applicant sought an order that its costs be awarded on a lump sum basis.
6 In support of that order, the applicant tendered a detailed bill of costs in taxable form prepared by Michael John Dudman who is an expert in the assessment of legal costs.
7 Mr Dudman swore an affidavit on 14 March 2014 which was read and relied upon by the applicant in support of its lump sum costs application.
8 At pars 8 to 11 of his affidavit, Mr Dudman described the task which he had undertaken and the instructions which he had received. He said that he had been instructed to provide his opinion as to the amount likely to be considered by a taxing officer as the necessary and proper costs and disbursements incurred by the applicant (for the period up to 31 July 2011) and as the reasonable costs and disbursements incurred thereafter if the applicant's costs and disbursements were to be taxed in accordance with the relevant rules of Court on the party/party basis. At par 41 of his affidavit, Mr Dudman concluded that the amount of costs and disbursements likely to be awarded to the applicant upon the bases outlined above was $729,223.98.
9 At pars 20 and 21 of his affidavit, Mr Dudman said:
In light of the limitations referred to at paragraph 18 I have prepared a Bill of Costs following different methodologies detailed below to ensure formal compliance with the Federal Court scales as set out within Schedule 2 to the Federal Court Rules prior to 1 August 2011 ("the earlier scale") and as set out within Schedule 3 to the Federal Court Rules from to 1 August 2011 ("the later scale").
I have claimed no costs which appear to me not to be recoverable on a party/party basis, including, but not limited to:
a. costs more appropriately recoverable from the First Respondent and the Third Respondent (these items have been apportioned, pursuant to instructions from Goodman Law, as claiming two thirds attributable to the Second and Fourth Respondents and one third attributable to the First and Third Respondents not claimed);
b. some costs relating to updating or reporting to the Applicant; and,
c. costs incurred in the Supreme Court of the ACT prior to May 2010.
d. costs incurred in June 2012 and July 2012 relating to steps taken to obtain a Mareva injunction.
10 At paragraphs 22 and 23 of his affidavit, Mr Dudman explained in detail the tasks which he undertook in order to make an appropriate assessment of the applicant's costs. At paras 24 - 41, Mr Dudman explained his reasons for concluding that an appropriate amount for the applicant's costs was $729,223.98. He said:
24. In my opinion the Bill of Costs prepared in taxable form, marked as Exhibit MJD3 hereto, provides a sound basis for a claim in this Honourable Court for taxation of the Applicant's party/party costs.
25. In my experience a reasonably well drafted Bill of Costs will typically be reduced by between 5% and 15% on taxation, with a further reduction likely to depend upon allowances made by the taxing officer for claims sought for General Care and Conduct and Skill Care and Responsibility.
26. I consider the Bill of Costs in this matter provides a sound basis for calculating the costs incurred on the "necessary and proper" test in relation to the earlier scale and on the "reasonable" test on the later scale.
27. In my opinion costs as claimed within the Bill of Costs would be likely to be reduced no more than 10% on an item-by-item basis.
28. Profit costs claimed within the bill of Costs before any claims for General Care and Conduct or for Skill Care and Responsibility are accounted for total $464,995.24.
29. This represents an amount of $131,189.03 incurred in relation to the earlier scale and an amount of $333,806.21 in relation to the later scale.
30. Reducing these amounts by 10% would result in profit costs allowed in relation to the earlier scale in the amount of $118,070.13 and in relation to the later scale in the amount of $300,425.59.
31. I believe claims for General Care and Conduct for work performed in relation to the earlier scale are likely to be allowed at 12%, amounting to $14,168.42.
32. I believe claims for Skill Care and Responsibility for work performed in relation to the later scale are likely to be allowed at 7%, amounting to $21,029.79.
33. The difference in these percentages reflects my opinion that a higher allowance would be allowable for General Care and Conduct for work performed in relation to the earlier scale than claims for Skill Care and Responsibility for work performed in relation to the later scale due to the later scale largely utilising hourly rates as charged on a solicitor/client basis.
34. I have not yet attended a taxation of costs in which a claim for Skill Care and Responsibility for work performed in relation to the later scale has been taxed.
35. I am instructed that disbursements claimed within the Bill of Costs are those charged on a solicitor/client basis.
36. I have reviewed the list of disbursements to ascertain whether they constitute what might be considered necessary and proper, or reasonable, and determined that there is nothing exceptional about the disbursements as listed.
37. I have reviewed source documents, including invoices and accounts, pertaining to the proportion disbursements as claimed, and, in my opinion the costs outlined in those documents can be considered necessary and proper, and reasonable, on a party/party basis.
38. I am instructed that some source documents have not been able to be made available to me as they are located in archive storage. Disbursements for which I have not yet sighted source documents are listed in the document annexed to this affidavit and marked "MJD3". The amount of disbursements for which I have not sighted source documents is $170,935.48.
39. In my opinion little more than 5% would be likely to be taxed off disbursements incurred in these proceedings as they appear to have been almost entirely incurred on a necessary or proper basis or, in relation to the later scale, on a reasonable basis.
40. Disbursements claimed within the Bill of Costs amount to $290,031.63. Applying a 5% reduction to this amount would result in disbursements allowed in the amount of $275,530.05.
41. Applying reductions to profit costs and disbursements claimed within the Bill of Costs as proposed leaves an amount of $729,223.98 which, in my opinion, is the amount likely to be considered by a taxing officer as "necessary and proper" costs and disbursements (or "reasonable" costs and disbursements in relation to those incurred from 1 August 2011) if the costs and disbursements itemised within the bill of costs were to be taxed pursuant to Division 40.2 of the Federal Court Rules 2011.
11 Counsel informed me at the hearing that he was now in a position to tender primary records in order to prove that the disbursements listed in Annexure "MJD-3" to Mr Dudman's affidavit were, in fact, incurred as alleged. I did not require him to make that tender.
12 The applicant's application for a lump sum costs order was also supported by affidavits sworn by the applicant's solicitor, Mr Kay. Mr Kay swore two affidavits on 18 March 2014 and one on 4 April 2014. In those affidavits Mr Kay established that he had served upon the second and fourth respondents the lump sum costs application, Mr Dudman's affidavit, the exhibit to that affidavit, his own affidavits of 18 March 2014, a copy of the orders made by me on 6 March 2014 and a copy of the transcript of the directions hearing held on 6 March 2014.
13 Mr Kay also briefly described some of the more significant events which occurred during the course of the litigation to date in order to support the proposition that a lump sum costs order should be made and that the quantum of costs claimed was reasonable.
14 I have been informed that the total amount of fees and disbursements (incl GST) paid by the applicant to its lawyer in respect of this proceeding was $820,417.67.
15 As I have already mentioned, the applicant claimed a lump sum costs order in the amount arrived at by Mr Dudman, that is to say, in the amount of $729, 223.98.
16 I am satisfied that the second and fourth respondents have been notified of the fact that the applicant seeks a lump sum costs order against them and of the quantum sought by the applicant. I am also satisfied that they have been duly served with all of the evidence to be relied upon in support of that claim with the exception of Mr Kay's affidavit sworn this morning.
17 I intend to approach the applicant's present application by applying the following principles:
(a) Rule 40.02(b) of the Federal Court Rules 2011 provides for the award of a lump sum costs order in appropriate circumstances. That rule gives to the Court a broad discretion which should be exercised whenever the circumstances warrant it (see Dunstan v Human Rights and Equal Opportunity Commission (No. 3) [2006] FCA 916 at [23]; Black and Decker Inc v GMCA Pty Limited (No. 4) (2008) FCA 1737 at [3]; and Playcorp Group of Companies Pty Limited v Peter Bodum A/S (No. 2) (2010) FCA 455 at [3]).
(b) The Court should not be slow to exercise the relevant discretion in an appropriate case.
(c) Any exercise of the discretion to make a lump sum costs order should reflect the overarching principle embodied in s 37M and s 37N of the Federal Court of Australia Act 1976 (Cth). The discretion should be exercised logically, fairly and reasonably (see Beach Petroleum NL v Johnson (No. 2) (1995) 57 FCR 119 at 120F and 123C; Ginos Engineers Pty Limited v Autodesk Australia Pty Limited (2008) 249 ALR 371 at 377 [22]; and Sony Entertainment (Australia) Limited v Smith (2005) 215 ALR 788 at 813 [198] and [199]).
(d) The rule serves to avoid the expense, delay and aggravation involved in a formal taxation of costs and associated litigation. In particular, in cases where the incurring of additional costs in taxing bills would result in an additional burden on the successful party, there is strong reason for making a lump sum costs order. A relevant factor in favour of a lump sum costs order will often be that the party against whom the order is sought is in financial difficulties with the consequence that the prospects of the successful party recovering its costs of taxation are poor (Bitek Pty Limited v IConnect Pty Limited (2012) 290 ALR 288 at 292 [15] per Kenny J).
(e) The approach to be taken by the Court in deciding whether to make such an order and in arriving at the quantum thereof should be a broad brush approach. It is one of estimation or assessment and not of arithmetic. The Court should avoid, in effect, carrying out a taxation under the guise of performing a lump sum costs assessment.
(f) The fact that the making of such an order may cause hardship on the party against whom the order is made is not relevant.
(g) The evidence of an expert costs assessor is both relevant to and probative of whether a lump sum costs order ought to be made and the quantum of any such order.
18 A consideration of the above factors leads inevitably to the conclusion that a lump sum costs order should be made in the present case. I am reinforced in that conclusion by the circumstance that the second and fourth respondents have not opposed the making of such an order nor have they had anything to say about the quantum thereof. In fact, the second and fourth respondents have now absented themselves entirely from the proceeding.
19 My reasons for deciding to make a lump sum costs order in the present case may be shortly stated as follows:
(a) The second and fourth respondents appear to me at this stage to be without substantial funds. I infer that this is so from the circumstances that they have filed a Submitting Notice, have withdrawn instructions from their lawyers and have decided to take no further part in the proceeding.
(b) Because of the complexity of the issues in the proceeding and the resistance to the applicant's claims mounted by the second and fourth respondents, a taxation of the applicant's costs will be time consuming and expensive. Recovery of any reasonable sum towards the applicant's costs of taxation is problematic.
20 In his affidavit, which is comprehensive and very detailed, Mr Dudman explained his approach to the assessment which he made. It appears to me to be fair, logical, rational and reasonable. Because the second and fourth respondents are not participating in the proceeding, there was no challenge to any part of Mr Dudman's evidence. I see no reason not to accept it.
21 One issue arises in relation to quantum. I am aware that, in mid-2012, I made a costs order against the applicant in favour of the second and fourth respondents in respect of an application for a Mareva injunction which was made by the applicant shortly after the completion of the hearing before me. It is not clear to me whether Mr Dudman has excluded from his consideration all of the costs incurred by the applicant in respect of that application. He does refer to that application at par 21(d) of his affidavit but he does not make clear in that paragraph precisely what was excluded from consideration by him.
22 I have been informed from the bar table that an assessment of costs of that application was made by the second and fourth respondents at a figure of slightly over $5,000 and that the applicant paid that amount to those respondents. That does not, however, address the matter which is of concern to me, which is whether Mr Dudman has excluded from his assessment all of the work done by the lawyers for the applicant in respect of that application.
23 In order to ensure that the final result is fair to all parties, I propose to reduce the amount claimed from $729,223.98 to $715,000 because I am not satisfied that Mr Dudman did exclude from his assessment all of the costs associated with the applicant's unsuccessful Mareva application. $715,000 is 87.15% of $820,417.67. That is to say, the quantum of the order for lump sum costs which I have in mind is 87.15% of the amount of actual costs incurred by the applicant in conducting the litigation. A percentage of that order is, if anything, a little on the high side. I think that the small reduction which I have in mind is both fair and reasonable.
24 For the above reasons, I will make a lump sum costs order in favour of the applicant in the amount of $715,000 (inclusive of fees, disbursements and GST).
25 I will list the matter for further directions at 9.15 am before me on 1 August 2014 in the ACT list.
26 I will grant liberty to apply to all parties on three days' notice or on such shorter notice as a Judge might allow.
27 There will be orders accordingly.
I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Foster.