Beach Petroleum NL v Johnson

Federal Court of Australia|1998-01-23|Before: O'Loughlin J, Doussa J

THE COURT ORDERS THAT: (1) The first respondent's party and party costs pursuant to the orders made on 20 and 23 December 1996 will be assessed as a gross sum pursuant to O 62, r 4(2)(c) of the Federal Court Rules at $634,320.54 inclusive of the costs of and incidental to the notice of motion filed on 28 August 1997. (2) The first, second and third applicants pay the sum of $259,075.27 costs to the first respondent. (3) The fourth to the eighteenth applicants pay to the first respondent the sum of $315,307.32 costs Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT This matter has been listed to hear two notices of motion filed respectively by the first respondent on 28 August 1997, and the second and third respondents on 18 December 1997. In the notices of motion the respective respondents seek to have costs payable by the applicants assessed as a gross sum pursuant to O 62, r 4(2)(c) of the Federal Court Rules. Judgment at first instance in the principal proceedings was delivered on 20 December 1996, and consequential orders, including orders for costs in respect of the trial were made on 23 December 1996. There are two groups of applicants. The first, second and third applicants ("the Sparnon applicants") initially formulated a claim just in excess of $3m, but recast the claim during trial to a figure of $1,144,835. Judgment was entered in their favour against the first respondent ("Apand") for $51,200. Their claim against the second and third respondents was dismissed. The second group of applicants was the fourth to eighteenth applicants ("the Perre applicants") who formulated a claim of approximately $9m against all three respondents. That claim proceeded to trial only on the issue of liability. The Perre applicants failed to establish a cause of action. Judgment was entered in favour of the respondents on the claim of the Perre applicants. The following orders as to costs in relation to the trial, relevant to the present notices of motion, were then made: · The first respondent's costs be taxed on a party and party basis; all the applicants pay 50 per cent of the taxed costs to the first respondent, and that the fourth to the eighteenth applicants pay a further 10 per cent of the taxed costs. · The applicants pay the taxed party and party costs of the second and third respondents. · Nothing in these orders shall prevent the parties agreeing their costs or following any of the procedures short of taxation provided for in O 62. The last of these orders contemplated the possibility of an application to fix the costs as a gross sum pursuant to O 62, r 4(2)(c). Delay occurred between the making of these orders and any steps to have the quantum of the costs determined as the Perre applicants appealed to a Full Court. That appeal was dismissed (unreported, Full Court, 21 November 1997). Notwithstanding that the Perre applicants are seeking special leave to appeal to the High Court, the respondents seek now to have their costs assessed. When the notices of motion came on for hearing, the Court was informed that agreement had been reached between the Perre applicants and the second and third respondents. By consent an order was made that the costs and disbursements payable by the Perre applicants to the second and third respondents be fixed at $625,000. The terms of the consent order make provision for a stay on the enforcement of the costs' order, in terms which reflect that the application for special leave to appeal to the High Court is yet to be heard. The Sparnon applicants have not appeared to either notice of motion. The second and third respondents do not seek to proceed at this stage with a gross sum assessment of costs against them, and that aspect of the notice of motion of the second and third respondents stands adjourned to a date to be fixed. Agreement was not reached by Apand with any of the applicants, and Apand has proceeded with its notice of motion. Apand placed before the Court a letter dated 12 February 1998 received by its solicitors from solicitors now acting for the third applicant. That letter indicates that the first and second applicants are in the process of filing a petition for their bankruptcy, and that the third applicant himself has debts exceeding $1.3m (a calculation which includes an estimate of the costs payable to Apand). The financial position of the Sparnon applicants is sufficient to explain why they have not appeared to the notice of motion. A statement of assets and liabilities of the Perre applicants, made available by their legal advisers, was also placed before the Court by Apand. That statement, prepared by chartered accountants, indicates that the Perre applicants have, in aggregate, net assets of approximately $1.4m and joint and contingent liabilities of approximately $1.5m in addition to their liability for costs to the respondents. When the agreed costs payable to the second and third respondents are added, the liabilities of the Perre applicants exceeds the estimated value of their assets by more than $725,000, and the deficit will be further increased by the costs payable to Apand. There is no doubt as to the power of the Court in this case to proceed under O 62, r 4(2)(c), as the order for costs contemplated such an application. The principles to be applied in deciding whether to exercise the power are discussed in Beach Petroleum NL v Johnson (No.2) 1995 57 FCR 119. The trial at first instance occupied 45 sitting days. Complex issues of fact and law were raised. The preparation of a bill of costs in the traditional manner itemising chronologically each item of work according to the scale would be extremely time consuming and expensive. There is no realistic prospect of any part of that expense being recovered from the Sparnon applicants. As against the Perre applicants the recovery would be only a partial one. In all the circumstances I consider this is a proper case to fix the costs as a gross sum. A gross sum assessment, by its very nature, does not envisage that a process similar to that involved in a traditional taxation should take place. Nevertheless the power to award a gross sum must be exercised judicially, and after giving the parties an adequate opportunity to make submissions on the matter: Leary v Leary [1987] 1 WLR 72 at 76D, and Beach Petroleum NL v Johnson (No.2) (1995) 57 FCR 119 at 120. That opportunity has been given in the present case. It has not been taken up by the Sparnon applicants, but the Perre applicants have been represented by counsel who has assisted with a detailed analysis of the components of the claim advanced by Apand. In support of the application Apand has filed a lengthy affidavit from Mr Peter Norman, a solicitor and acknowledged costs expert in this State. Mr Norman deposes to estimates of the costs which he has made. His affidavit indicates that he has had regard to the following material generated by Apand's solicitors in respect of the proceedings: · work in progress records of Apand's solicitors being, for Phillips Fox, Sydney, a 20 page document incorporating 407 attendances, and for Phillips Fox, Adelaide, a 172 page document incorporating 3,610 separate attendances. These documents constitute Apand's solicitors' billing guide which formed the basis of the actual accounts rendered by the solicitors to Apand · 12 manila folders incorporating correspondence, cost entries, telephone notes, accounts, and related memoranda · 3 arch lever volumes of correspondence each containing in the order of 400 pages · 3 arch lever volumes of exhibits each of similar size · 84 arch lever volumes of discovered documents · 9 arch lever volumes of transcript (3,439 pages) · 25 arch lever volumes containing subpoenaed documents · 19 arch lever volumes containing the pleadings, affidavits, orders and other documents filed at Court · 1 arch lever volume of experts' reports The bills actually rendered to Apand by its solicitors, and paid, totalled $1,040,135.80 made up as follows: Solicitor/client costs $466,400.00 Office disbursements excluding photocopying which was included in 29,893.60 the accounts referred to above Counsel fees 364,570.69 Witness and expert reports and evidence fees 126,753.89 Other external disbursements 45,127.01 Costs for estimating and reconciling costs (interim) - this amount is included for comparison purposes at scale although amount charged to client was higher 7,391.35

Costs, on whatever basis they are awarded, are intended to operate as an indemnity. Where costs are to be assessed on a party and party basis, they will inevitably be less than solicitor and client costs. On the taxation on a party and party basis, a taxing officer will allow all necessary and proper costs that have been incurred to defend or prosecute the proceedings, as the case may be, but not those costs which arise as a result of an over-cautious or excessive investigative approach: Canvas Graphics Pty Ltd v Kodak Australia Pty Ltd (unreported, Federal Court, O'Loughlin J, 23 January 1998 at p6). The guiding principle was succinctly stated by Barton J in Donohoe v Britz (No.2) (1904) 1 CLR 622 at 666 when he said: "It is a general rule that, as between party and party, the luxuries of litigation must be paid for by those who indulge in them, the necessaries only are to be paid for by the losing side." Mr Norman's analysis of the papers and billing guides has led to the following formulation of Apand's party and party costs: Solicitors costs $267,450.60 Care and conduct at 25% based on solicitors costs but not including photostating or facsimiles 66,862.65 Office disbursements including photostats, facsimiles and other disbursements 93,131.48 Counsel fees 364,570.69 Witness and expert reports and evidence fees 126,753.89 Other external disbursements 45,127.01 Costs for estimating and reconciling costs (interim) 7,391.35

It will be noted that the claim for party and party costs has been formulated in a way that enables it to be compared with the components of the charges actually rendered to Apand. The last four items are identical. Whereas the solicitor/client costs actually rendered totalled $466,400.00, the party and party claim is for $267,450.60. However, an additional allowance is made in the claim for party and party costs for care and conduct which has the effect of increasing the effective claim for solicitors' costs to $334,313.25. There is a significant difference in the amount claimed for office disbursements, the explanation for which appears below. The internal billing guides, whilst recording in a general way the items of work performed, record time spent by solicitors and clerks as the primary guide for charging the client. Mr Norman has prepared schedules, recording information extracted from the billing guide, showing hours spent by each person whose time was charged. The amounts actually charged to the client exceed the prescribed hourly charge rates set out in the Federal Court scale. Mr Norman has recalculated the claim for solicitors' fees by applying to the hours actually spent by personnel involved the rates provided for in the scale. This conversion exercise has resulted in a total for the time occupied on the case of $297,167.33. From this amount a deduction of 10 per cent was made, simply described as "party/party" to arrive at the amount claimed of $267,450.60. The deduction of 10 per cent is apparently to reflect the fact that the time which has been costed included time spent on items which would normally be disallowed on a party and party taxation, although properly forming part of the solicitor/client bill. This 10 per cent deduction is to reflect the likelihood that in a complicated case of this kind there is likely to be an element of over-caution and excessive investigation, and detailed reporting to the client over and above that which would be allowed in the party and party costs. It appears from a perusal of the billing guides of the Sydney and Adelaide offices of Apand's solicitors that there are extensive charges for inhouse conferences between solicitors and clerks, lengthy attendances on counsel, and many instances of "perusal and consideration". There are also extensive charges made following the completion of the evidence at trial. Some of this may have been reporting to the client but it is difficult to justify the full extent of the charges made at this stage as party and party costs. Counsel for the Perre applicants, whilst not disputing the time records, or their value in assessing a gross sum, contends that the discount used to convert actual solicitor and client charges to party and party costs is quite inadequate. Counsel contends that there should be a substantial discount to eliminate what he described as the luxuries of a team approach, and the possible duplication of work that this was likely to involve. He went so far as to suggest that as the litigation was conducted in Adelaide, the fees charged by the Phillips Fox office in Sydney should not be allowed on a party and party taxation. With that broad submission I do not agree. There were officers of Apand and other witnesses present in Sydney, and I have the impression from aspects of the evidence at trial that it would have been more convenient for parts of the case to be prepared in Sydney than by solicitors operating solely from Adelaide. Had the case been prepared solely by Adelaide based solicitors, I think there would have been extensive costs incurred in travelling and accommodation expenses. In a major case where there are witnesses in many States, and the client is a national company, I do not think that it is unreasonable for there to be solicitors instructed in places other than the capital city in which the proceedings are being conducted. The touchstone is whether the work performed was necessary and proper, and whether the way in which it was performed was a reasonable approach having regard to the circumstances of the case. In this instance it was necessary for there to be work performed outside of South Australia, and I think it was reasonable that solicitors be instructed both in Adelaide and in Sydney. However, It is necessary in such a case to guard against unnecessary duplication of work, and the possibility that some of the charges made to the client reflect the convenience of the client rather than the necessities of the litigation itself. In my opinion, Mr Norman's approach to the assessment of the party and party allowance for solicitors' costs, based on time spent, is reasonable. However, I think that the discount of 10 per cent which he has made is not sufficient. In determining the discount that should be made, it is necessary to consider the additional claim for care and conduct included in the assessment of party and party costs. An allowance for care and conduct upon taxation of party and party costs is permitted by Item 41 of the Federal Court scale. That item provides: "General care and conduct If the case or circumstances warrant it, an allowance may be claimed under this item, in addition to any item which appears in this scale, for general care and conduct (where appropriate) including the following:- (a) the complexity of the matter and the difficulty and novelty of the questions raised or any of them (b) the importance of the matter to the party and the amount involved (c) the skill, labour, specialised knowledge and responsibility involved therein on the part of the solicitor (d) the number and importance of the documents prepared or perused without regard to length (e) the time expended by the solicitor (f) research and consideration of questions of law and fact." In my opinion, the scale makes provision for an additional allowance for care and conduct, because it is an item based scale. Such an allowance is not automatic, but in a complex case involving long and difficult questions of great importance to a client it is not difficult to envisage that the item based scale may not sufficiently compensate for the degree of skill, specialised knowledge and responsibility necessary to properly present the case. Item 41 is intended to cover that type of situation, and the subject matter of paragraphs (a) to (f) identify factors of the kind that may warrant an allowance over and above costs assessed solely in accordance with the item based scale. These factors are also ones which are likely to attract the degree of attention to detail and close servicing of the client which, in more straightforward litigation, would be described as over-cautious, excessive, or a luxury of litigation. In the present case the bills actually rendered to the client did not include a separate item for care and conduct. However, I do not think it follows that no allowance for care and conduct should be included in the party and party costs as formulated on Apand's behalf. Apand's solicitors have charged, hour by hour, for all the work that was done. Where extra care and attention has been required because of the complexity of an issue in the matter, or because of novelty and difficulty, the extra time has been included in the bill. However, these are matters which would, in the circumstances of this case, justify an allowance over and above an item based assessment. The discount to be applied to the calculation of actual hours multiplied by the scale rate per hour should not be so high that it reduces the result to a figure which equates to an item based assessment. To do so would overlook that the nature of the case justifies some upward adjustment on an item by item assessment for care and conduct. Rather than include a specific allowance in the assessment of costs for care and conduct, I think that the complexities of the case should be reflected in the discount applied to Mr Norman's conversion calculation. Whilst I think the discount actually made of 10 per cent was not sufficient to reflect elements of duplications, perhaps arising from an over-cautious desire to leave no stone unturned in the clients' interests, I do not think that the reduction should be in the order of 30 to 40 per cent as urged by counsel for the Perre applicants. In my opinion, if the conversion calculation is reduced by 15 per cent, and no separate allowance is made for care and conduct, an appropriate figure is achieved. This has the result of reducing the conversion total of $297,167.30 to $252,592.21. The solicitor/client charges actually rendered to Apand were $466,400.00. However, that sum includes a component for photocopying. It is difficult to determine precisely what that component is. The office disbursements excluding photostating identified in the bills actually rendered is $29,893.60. Exhibit PJN4 to Mr Norman's affidavit identifies the total office disbursements charged to Apand as $41,160.64. Deducting the sum of $29,893.60 from that sum suggests that the photocopying expenses included in the solicitor/client costs is $11,267.04. In other words the actual bills for solicitors' services based on time charges to Apand were $455,132.96. The amount that I propose for party and party solicitors' costs of $252,592.21 is 55.5 per cent of this sum. The office disbursements actually charged to Apand include facsimiles, postage, taxi, travel, search fees and filing fees about which no argument is raised. In my opinion they constitute proper disbursements on a party and party basis. The balance of the actual charges to the client, in respect of photostating, have been assessed at rates, in most instances at 30˘ or 40˘ per sheet but, in some instances, at 87˘ per sheet. These charge rates compare with the scale fee provided in Item 16 of the Federal Court scale. That item reads: "Copies Of any document, including carbon, photographic or machine copy - per page $1.00 except that, if allowance for 10 or more pages is claimed, in respect of any document or documents, the costs to be allowed for the copies are at the discretion of the taxing officer." Counsel for the Perre applicants contends that much of the photostating could have been done at cheaper rates using a commercial organisation, and, further, that some of the clerical time included in the hours charged could be in respect of photocopying. In the case of some of the photostating, these submissions are probably correct. However, I have no means of determining to what extent photocopying could have been achieved more cheaply through a commercial organisation, nor can I assess what additional charges may have been incurred in making the necessary arrangements with the organisation, delivering papers to it, checking them on return, and so on. Moreover, there are probably many pages included in the photocopying charges which, under the scale, could have been charged at a higher rate than was actually charged. In the circumstances I see no reason to vary the amount actually charged to the client. This amount will be reflected in the party and party assessment by allowing the disbursements at $41,160.64 (that is the sum of $29,893.60 included as office disbursements in the bill actually rendered to Apand together with the sum of $11,267.04 for photocopying included as part of the solicitor and client component of the actual charges). The next item claimed is counsel fees of $364,570.69. The memoranda of fees received from the counsel involved have been placed before the Court. At trial Apand was represented by two junior counsel. Counsel for the Perre applicants does not argue that this was not a proper case for two counsel. In my view the engagement of two counsel was reasonable. The standing of the counsel involved is such that each of them would normally attract fees on a party and party taxation, towards the upper level of the fee range for junior counsel specified in the South Australian Supreme Court guides to counsel fees. That guide is used by a Registrar in the Federal Court in this State when a taxation occurs. Notes to that guide are instructive. The current guide specifies fees applicable from 1 August 1994. The guide commences with the following observations: "This Guide is not a scale of fees to be charged by counsel. Counsel fees are determined by agreement between counsel and client and are regulated by competition. Party and party costs are an indemnity to the successful party and should reflect the amounts which that party has had to pay to obtain counsel at a level appropriate to the litigation. The amount recoverable is the amount of the party's actual liability for counsel fees within proper and reasonable limits...". Such an approach to the assessment of counsel fees is, in my view, entirely in accordance with principles adopted in the Federal Court. The scale then proceeds to nominate a range of fees for both junior and senior counsel for a number of specified items. Of particular relevance are the following two: Junior Counsel Senior Counsel $ $ 1 Daily trial fee 650-1,350 1,350-2,500 2 Conferences and preparation time and other time necessarily and reasonably engaged - not otherwise provided for per hour 130-200 200-250 or (a) Where time involved is less than 310-650 650-1,250 6 hours (b) Full day 650-1,350 1,350-2,500

The guide no longer contains items for a fee on brief or refresher. In Judge R M Lunn QC's "Civil Procedure in South Australia" at paragraph 10.975 a number of "notes" are appended to the guide. Note 2 to the scale says: "2. The concept of fee on brief and refresher is no longer to be maintained. Instead, a daily fee will be allowed (Item 1) together with a fee for preparation (Item 2). The daily fee will be calculated by reference to each 5 hour period (not including the luncheon adjournment) spent in court or chambers as the case may be. The daily fee for the first day includes a reasonable amount of preparation including reading the first 150 pages of the brief. The daily fee includes an allowance for one conference and an allowance for reading and noting up evidence overnight by way of preparation for the evidence to be adduced on the following day and by way of preparation of addresses..." The present Supreme Court guide to counsel fees departs from the time honoured basis of charging counsel fees, namely a brief fee and refresher of two thirds of that fee for each day after the first one occupied by the trial: see Magna Alloys and Research Pty Ltd v Coffee No.2 [1982] 2 VR 97 at 112, 113. The Supreme Court guide reflects current practices which were applied by Branson J in Brookfield v Davey Products Pty Ltd (unreported, 19 December 1997). In that case her Honour proceeded to assess costs as a gross sum in respect of litigation that had been conducted in the Federal Court in South Australia. See also the discussion in Quick on Costs at paragraph 8.1750-1760. Counsel instructed by Apand have rendered fees for their preparation and for their time spent during the trial on a daily basis (except where fewer hours were worked on a particular day, when their charges are based on an hourly rate). In the present case one counsel was involved in 13 days of pretrial preparation, and the other was involved in 16 days pretrial preparation. There were a number of adjournments during the trial. During these periods, it appears from the memoranda of fees that counsel, between them, spent some 90 days (including weekends) reading, interviewing witnesses, on views, and in preparation. The memoranda indicate that much of the research and preparation work for the trial was conducted by, or under the close supervision of, the barristers. It is apparent from the memoranda of fees, particularly in the days immediately before the commencement of the trial, and, later, during adjournments, that they were involved in investigating issues of fact that arose belatedly out of the applicants' case, in proofing witnesses and in perusing thousands of pages of documents discovered by other parties. Much of this work would ordinarily have been done by solicitors. Had it been so performed, the solicitors' fees on a party and party basis would have been greater than they are, and the amount claimed for counsel fees somewhat less. I propose therefore to allow as party and party costs daily fees to counsel for longer than would normally be expected for preparation both before the trial commenced and during adjournments. The preparation time was also longer than might ordinarily be necessary by reason of the number of documents discovered by other parties, and the need to investigate many of the heads of damage claimed - which were held to be grossly excessive at trial. Notwithstanding these considerations, I think on a party and party basis the period of pretrial preparation should be reduced to eight days for each counsel, and that their fees should be allowed per day at $1,200 each. That fee would also apply for 45 days of trial. In addition I consider a further 20 days for one counsel should be allowed for additional time spent during adjournments on preparation for issues that arose during the course of the case. In all, I propose to allow 126 counsel days at $1,200 per day, namely $151,200. Claims were also made in respect of counsel, other than those who appeared at trial, for opinions sought on points of law raised by the appellants' cases. In my opinion, whilst these are proper solicitor and client costs, they should not be included in the party and party costs. The counsels' memoranda of fees also include disbursements for travel and other proper expenses incurred by them totalling $11,305.44. These should be included in the party and party costs. The next item is witness and expert reports and evidence fees totalling $126,753.89. Certain of the expenses included in this sum are challenged. Expert fees to Deloitte Touche Tohmatsu of $108,950.00 are said to be too high. However, no information has been put before the Court to estimate how these charges were arrived at or why they might be thought to be excessive or indeed how it is proposed that they should be calculated. There were very large damages claims presented by both groups of applicants which required substantial investigation and research. I agree with the conclusion of O'Loughlin J in Canvas Graphics Pty Ltd v Kodak at p 20-21 that the Court is not equipped to make its own investigations into accountants' charges. In the absence of evidence sufficient to form an opinion that the work charged for was not reasonably necessary, I do not think that the amount claimed in this case should be reduced. There is also a challenge to items for an expert witness on bacterial wilt who was not called, to the witness expenses of Mr Hughes, and to fees charged by Mr Ivey and by Lawson and Treloar Pty Ltd both of whom supplied expert advice to Apand on aspects of the case. In my opinion, the fee incurred to the expert on bacterial wilt ($1,210) should not be allowed, but the other disbursements were properly incurred having regard to the issues raised by the appellants' case. I therefore allow the disbursements at $125,543.89. I do not understand counsel to raise any dispute about the item "other external disbursements" of $45,127.01. They appear to me to be items that were properly incurred on a party and party basis. The extent of the costs sought for estimating and reconciling costs in preparing the submissions in support of the present notice of motion were said to be too high. A substantial part of the amount claimed was a fee to an information technology company that assisted in setting up a data base from which some of the calculations were made. On the other hand it appears from the schedule supporting this item that there have been other expenses incurred for which no amount has been included. The amount claimed is small compared with the amount that was incurred in endeavouring to draw a bill of costs in Beach Petroleum v Johnson (see at 123). In my opinion, the amount claimed under this item is not unreasonable as a party and party expense. I therefore allow it. In summary I consider that the gross sum costs should be assessed as follows: Solicitors' costs $252,592.21 Office disbursements, including photostats 41,160.64 Counsel fees and disbursements 162,505.44 Witness and expert reports and evidence fees 125,543.89 Other external disbursements 45,127.01 Cost of estimating and reconciling costs 7,391.35

The orders for costs to be made against the Sparnon applicants and the Perre applicants must be reduced in accordance with the percentages specified in the orders made on 23 December 1996, and the parties are agreed that it is also necessary to set off against the costs so calculated in the case of each group of applicants the sum of $58,085.00 being the judgment awarded in favour of the Sparnons with interest thereon at 12 per cent from the date of judgment. There will be orders: (1) That the first respondent's party and party costs pursuant to the orders made on 20 and 23 December 1996 will be assessed as a gross sum pursuant to O 62, r 4(2)(c) of the Federal Court Rules at $634,320.54 inclusive of the costs of and incidental to the notice of motion filed on 28 August 1997. (2) That the first, second and third applicants pay the sum of $259,075.27 costs to the first respondent. (3) That the fourth to the eighteenth applicants pay to the first respondent the sum of $322,507.32 costs. I certify that this and the preceding fifteen (15) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice von Doussa

Associate: Dated: 4 March 1998 Counsel for the Applicant: Mr M Rice

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