Clean Energy Regulator v MT Solar Pty Ltd

JUDGE: FOSTER J DATE: 5 DECEMBER 2013 PLACE: CANBERRA

REASONS FOR JUDGMENT 1 On 8 March 2013, I delivered Reasons for Judgment and made declarations and orders in respect of several contraventions of the Renewable Energy (Electricity) Act 2000 (Cth) committed by the respondents (Clean Energy Regulator v MT Solar Pty Ltd [2013] FCA 205). 2 The first respondent (MT Solar), is a company which supplied and installed small generation units (being grid-connected solar power generation systems). Many of those installations were carried out by the fifth respondent (Mr Kibblewhite). Mr Kibblewhite had assured the third respondent (Mr Liu) that he was a qualified electrician who had CEC accreditation and was, for that reason, qualified to install the solar power generation systems being sold by MT Solar. Those assurances were used to procure Renewable Energy Certificates in contravention of the Renewable Energy (Electricity) Act 2000 (Cth). Mr Liu has been a director of MT Solar at all relevant times. 3 The second respondent (Green Master) performed similar installations using Mr Kibblewhite. The fourth respondent (Mr Zhu) has been a director of Green Master at all relevant times. 4 Amongst the orders which I made on 8 March 2013 were orders imposing pecuniary penalties on the respondents. The particular penalties imposed were as follows: (a) On MT Solar, $70,000; (b) On Green Master, $14,500; (c) On Mr Liu, $14,000; (d) On Mr Zhu, $2,900; and (e) On Mr Kibblewhite, $108,000. 5 The first four respondents co-operated with the Clean Energy Regulator (the regulator) in investigating the alleged contraventions. They all admitted the contraventions and co-operated fully in the formulation of a Statement of Agreed Facts. Mr Kibblewhite, on the other hand, did not co-operate in any respect whatsoever. Nor did he participate in any way in the proceeding. 6 Shortly before I delivered judgment on 8 March 2013, I was asked to reserve the question of costs. I did so. The regulator subsequently made application to the Court by Interlocutory Application filed on 1 November 2013 for specific lump sum orders for costs against each of the respondents. These Reasons for Judgment determine that Interlocutory Application for lump sum costs orders. 7 By its Interlocutory Application, the regulator claimed a total amount of $209,600 towards its costs apportioned as follows: (a) $39,600 payable by MT Solar; (b) $39,800 payable by Green Master; (c) $40,500 payable by Mr Liu; (d) $30,700 payable by Mr Zhu; and (e) $59,000 payable by Mr Kibblewhite. 8 Shortly before the commencement of the hearing of the regulator's lump sum costs application, I was informed that the regulator and Mr Zhu had reached an agreement as to the costs to be paid by him. That agreement is reflected in Consent Orders signed by the solicitor for the regulator and the solicitor for Mr Zhu. Under that agreement, Mr Zhu is required to pay the total amount of $15,000 towards the regulator's costs. He is obliged to do so by way of two instalments. In due course, I intend to make orders giving effect to that agreement. 9 The settlement agreement with Mr Zhu affects the total amount now being claimed by the regulator. That amount has been reduced from $209,600 to $193,900. 10 The regulator has not sought to increase the amounts payable by the other respondents as a result of settling with Mr Zhu at a figure below that which the regulator had originally sought in its lump sum costs application. In addition, the regulator has not sought any costs in respect of the lump sum costs application itself. 11 In support of the orders which it seeks, the regulator relied upon the affidavit of Kim Musgrave Chapman affirmed on 17 October 2013 and the affidavit of Erica Susan Smith affirmed on 15 November 2013. Mr Chapman is an expert in the assessment of legal costs. He was not cross-examined and his evidence was not challenged. Ms Smith gave evidence as to the service upon Mr Kibblewhite of the regulator's lump sum costs application, the affidavits in support of that application and the regulator's submissions directed to the relief now claimed. I shall return to the question of service upon Mr Kibblewhite later in these Reasons. 12 Mr Chapman satisfied himself as to the actual costs incurred by the regulator in the conduct of this proceeding. He did so by reference to memoranda of fees and disbursements rendered to the regulator by the Australian Government Solicitor and Counsel retained by it. The total amount incurred by the regulator inclusive of GST was calculated to be $306,304.13. I am satisfied that Mr Chapman's calculation in this respect is correct. 13 Mr Chapman then brought to bear his expertise in order to assess the total amount of costs likely to be taxed on a party/party basis upon the assumption that all of the regulator's costs of the proceeding were the subject of that hypothetical taxation. He arrived at a figure of $209,963.48 as that amount. 14 Mr Chapman explained in general terms the approach that he took in order to arrive at the figure of $209,963.48 for party/party costs, although he did not descend into much detail as to the precise calculations which he had made. 15 The figure of $209,963.48 is just a little over two-thirds of the actual costs incurred by the regulator. I have case managed this matter from its inception and, of course, conducted the hearing. I am very familiar with the way in which the case was run. I have no doubt that it was run in an efficient and appropriate way, having regard to the obligations imposed on the regulator under relevant Commonwealth legislation and also having regard to the general obligations of litigants who choose to litigate in this Court (as to which see, in particular, s 37M and s 37N of the Federal Court of Australia Act 1976 (Cth) (the Federal Court Act)). I am quite comfortable with the ultimate conclusion reached by Mr Chapman that an amount of the order of $209,000 would be recoverable by the regulator as party/party costs of this litigation were the regulator's costs to be formally taxed. 16 The next step undertaken by Mr Chapman was to endeavour to attribute to each respondent an appropriate proportion of the regulator's assessed party/party costs. 17 Mr Chapman made his assessments of the individual proportions in the following way. 18 First, he identified and quantified those costs which were common costs being those costs for which, in his opinion, each respondent should bear responsibility in equal measure. He arrived at the amount of $130,044 as common costs assessed on the party/party basis. He then rounded that figure down to $130,000 and allocated one fifth of his rounded figure ($26,000) to each respondent. 19 Second, he undertook an analysis of the remaining costs ($79,600) in order to assess the respective proportions of those costs to be attributed to each respondent. He arrived at $13,600 for MT Solar, $14,500 for Mr Liu, $13,800 for Green Master, $4,700 for Mr Zhu and $33,000 for Mr Kibblewhite. 20 Mr Chapman did not explain in any detail the reasoning which he applied in carrying out the exercise which I have just described. 21 I must say that, at the commencement of the hearing, I had some concerns that the amount derived by Mr Chapman as common costs perhaps unfairly attributed to the first to fourth respondents too great a share of the costs incurred by the regulator and attributed too small a share of those costs to Mr Kibblewhite. This caused me to look closely at the specific charges made to the regulator by the Australian Government Solicitor and Counsel, both as to when those charges were incurred and what work was referable to those charges. Counsel for the regulator also addressed me on the matter. 22 It is to be remembered that the case as put against all respondents other than Mr Kibblewhite was ultimately based upon admissions on the pleadings and facts agreed in a Statement of Agreed Facts. The case against Mr Kibblewhite had to be proven by way of evidence. However, the costs incurred by the regulator prior to the commencement of the proceeding in the investigation stage should fairly be regarded as apportionable equally among all respondents. A number of other activities subsequent to the commencement of the proceeding were obviously activities for which all respondents should bear equal responsibility. These include the making of detailed submissions which addressed the relevant principles and administrative matters associated with progressing the matter generally. In addition, it seems to me that the work done in preparing the Statement of Agreed Facts and in preparing evidence against Mr Kibblewhite overlapped to a significant degree. 23 Looking at the matter in a broad-brush fashion but bringing to bear my own experience in respect of costs over the years both as a practitioner and lately as a judge, I have come to the view that the figure arrived at by Mr Chapman for common costs is reasonable. Approximately $70,000 of the total party/party costs assessed by Mr Chapman was incurred prior to the commencement of proceedings. Insofar as the balance of the amount for common costs assessed by Mr Chapman is concerned, it seems to me that allowing an additional amount of $60,000 for common costs incurred in the period after the commencement of the proceeding is also reasonable. 24 The other respondent-specific figures derived by Mr Chapman do not appear to me to be out of line with the way in which the case ran or the particular role and level of participation adopted by each respondent. I think that the apportionment of those costs suggested by Mr Chapman is fair and reasonable. 25 Counsel for the regulator included within his Written Submission the following table in which he set out the particular amounts claimed against each respondent, both for common costs and respondent-specific costs, in order to explain how the regulator had arrived at the apportionment which it had originally sought: 26 I note that the total amount claimed at the time when the regulator's Written Submission was prepared had been rounded down from $209,963 to $209,600. 27 As I mentioned above, Mr Zhu has recently come to an agreement with the regulator concerning costs. I have been informed that Green Master submits to any order which the Court wishes to make in respect of costs. Although it is still represented by solicitors in this proceeding, it did not appear this morning. I note that Green Master is well aware that the order sought against it is for an amount of $39,800. 28 Mr Liu, who appeared for himself and also for MT Solar, opposed the making of any order for costs against MT Solar or himself. Mr Liu appeared by telephone before me this morning. He also made a brief Written Submission dated 4 November 2013. The essence of Mr Liu's submissions was that neither MT Solar nor himself should have to pay any costs and that, if I do not accept that submission, he should only have to pay $6,000 or thereabouts. He explained to me that he already has difficulty paying the penalty which I ordered against him in March 2013 and would not have any real chance of paying any costs of the order of magnitude sought by the regulator. Mr Liu had made submissions earlier this year in respect of costs at a time when the regulator's ultimate position on costs was not known. Those earlier submissions do not add in any relevant way to the substance of the submissions which he made this morning. 29 Counsel for the regulator helpfully addressed the relevant principles. Counsel submitted that: (a) The regulator was completely successful in the case which it brought. Although costs are in the discretion of the Court (as to which, see s 43(2) of the Federal Court Act), ordinarily, costs should follow the event. Generally, costs will be ordered to be paid on the party/party basis. This is the starting point from which the Court should consider the present application. That is, I should commence my consideration of the regulator's lump sum costs application by assuming that, if I do not accede to that application, all respondents (except Mr Zhu) would be ordered to pay all of the regulator's costs which would be likely to be taxed at or near $209,600 on the party/party basis. (b) The regulator relied on r 40.02(b) of the Federal Court Rules 2011 (FCR). 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 Ltd (No 4) [2008] FCA 1737 at [3]; and Playcorp Group of Companies Pty Ltd v Peter Bodum A/S (No 2) [2010] FCA 455 at [3]). (c) The Court should not be slow to exercise a discretion in an appropriate case. (d) 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 Act. 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 Ltd v Autodesk Australia Pty Ltd (2008) 249 ALR 371 at 377 [22]; and Sony Entertainment (Australia) Ltd v Smith (2005) 215 ALR 788 at 813 [198] and [199]). (e) The rule serves to avoid expense, delay and aggravation involved in the 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. (f) The approach to be taken by the courts 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. (g) The fact that the making of such an order may cause hardship on the party against whom the order is made is not relevant. (h) 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. 30 These submissions correctly capture the relevant principles. I propose to apply them in the present case. 31 In my judgment, there are strong reasons for making a lump sum costs order in this case. I also consider that apportioning costs among the respondents is warranted. Mr Liu's submissions do not come to grips with the regulator's lump sum costs application and I reject them. 32 I have, I think, made clear the basis upon which the apportionment sought in the present case has been arrived at by the regulator. It seems to me that the principle adopted by the regulator is that each respondent should pay a fair contribution towards the party/party costs incurred by the regulator and that such a contribution should reflect the responsibility which the Court considers that each respondent ought to bear for the incurring of costs by the regulator. 33 I initially had some reservations about the apportionment sought by the regulator. My main reservation concerned the amount that was ultimately sought against Mr Kibblewhite as compared with the particular amounts sought against the other respondents. I had intuitively thought that the total amount payable by Mr Kibblewhite should perhaps be a little higher than the amount claimed by the regulator. However, upon further consideration and after listening to Counsel for the regulator, I have come to the conclusion that the overall apportionment sought by the regulator is reasonable in all of the circumstances. In the end, the regulator is seeking approximately $20,000 more from Mr Kibblewhite than from each of the first three respondents and even more when a comparison is made with the amount agreed with Mr Zhu. In all the circumstances, I think that the apportionment brought forward by the regulator is a reasonable one and I propose to make orders reflecting that apportionment. 34 There remains the question of whether or not I should make any orders at all against Mr Kibblewhite given that he has not appeared this morning and has not participated in the proceeding in any way. 35 Counsel for the regulator satisfied me that the last known address of Mr Kibblewhite is 24 Tiarri Road, Terrey Hills, NSW. Under r 10.25 FCR: The filing of a document has effect as service of the document on the person to be served if: (a) personal service of the document is not required; and … (c) the document was sent to the person's proper address and there is proof of non delivery of the document. 36 The Dictionary to FCR defines "proper address" as: (a) the person's address for service; or (b) if the person has no address for service - the person's usual or last known business or residential address. 37 In addition, r 10.31 FCR provides: A document that is not required to be served personally may be served … (b) by sending the document by pre paid post addressed to the person at the person's proper address; … 38 The evidence before me concerning Mr Kibblewhite was that a copy of the regulator's Interlocutory Application seeking lump sum costs orders, the affidavits in support of that Application and the Written Submission of the regulator were all sent by pre-paid express post to 24 Tiarri Road, Terrey Hills, NSW. They were returned to the regulator's solicitors although the envelope in which the documents were sent had been opened. The relevant documents were also sent to an email address which had appeared on business documents previously tendered in evidence before me as Mr Kibblewhite's email address. Having regard to the terms of the rules to which I have referred, I am satisfied that service has been validly effected upon Mr Kibblewhite. The Terrey Hills address to which I have referred is a "proper address" within the meaning of those rules. So is the email address. For those reasons, I made an order at the commencement of the hearing this morning that the matter proceed in his absence. I am now also prepared to make an order against him in the terms sought by the regulator. 39 Accordingly, I order that: (1) Pursuant to r 40.02 FCR, the applicant's costs of this proceeding be awarded in a lump sum of $193,900, that amount to be apportioned between the respondents as follows: (a) $39,600 payable by the first respondent; (b) $39,800 payable by the second respondent; (c) $40,500 payable by the third respondent; (d) $15,000 payable by the fourth respondent; and (e) $59,000 payable by the fifth respondent. (2) The amount of $15,000 ordered against the fourth respondent be paid by way of instalments as follows: (a) $10,000 on or before 31 December 2013; and (b) $5,000 on or before 30 June 2014. 40 I note that the regulator does not seek any costs in respect of the Interlocutory Application determined by these Reasons for Judgment and accordingly I make no order as to the costs of that Application. I certify that the preceding forty (40) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Foster.