Coretell Pty Ltd v Australian Mud Company Pty Ltd

1. Order 3 of the Court made on 3 April 2017 be set aside.
2. The appellants pay ninety per cent of the respondents' costs of the appeal fixed in the amount of $334,560.
3. The $200,000 paid as security for costs pursuant to the orders of 23 May 2016 be released to the respondents in partial satisfaction of the sum required to be paid in Order 2.
4. The appellants pay the respondents' costs of the application to vary Order 3 of the orders made on 3 April 2017, fixed in the amount of $11,000. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011

THE COURT: 1 On 3 April 2017 the Court made orders which in broad terms dismissed the appellants' appeal and (in Order 3) required that the appellants pay 90% of the respondents' costs of the appeal. Because the parties had not fully addressed the Court on the question of costs, they were given an opportunity to file and serve any application to vary order 3 within 7 days. The respondents took up that invitation, and filed written submissions seeking, in lieu of Order 3, orders that: 3(a) The appellants pay the respondents' costs of the appeal fixed in an amount to be determined by the Court. 3(b) The $200,000 paid as security for costs pursuant to the orders of 27 May 2016 be released to the respondents in part satisfaction of the sum in order 3(a). 2 The respondents were granted leave to file an affidavit in support of the variation that they proposed and shortly thereafter they filed an affidavit sworn by Suzanne Ward, a legal practitioner who has practised exclusively in the field of legal cost consulting over the last 14 years. The appellants oppose the variation sought, and have filed an affidavit in response sworn by Jacqueline Highfield, who is also a legal practitioner and costs consultant and who has practised as a legal costs consultant since 2000. 3 The respondents submit that they have incurred substantial costs in the appeal. Ms Ward assesses that, making allowances for the amount that would be recoverable on taxation and the fact that the appellants are entitled to 90% of the costs of the appeal, the respondents' costs would come to a figure of $385,000. They submit that they also have the benefit of prior costs awards in their favour. These include costs of the proceedings at first instance, for which they have submitted a bill for taxation in the amount of $4,628,153 and another bill of costs in proceedings WAD 434 of 2016 against two of the present appellants, Coretell Pty Ltd and Mincrest Holdings Pty Ltd, estimated to be in the amount of over $2 million. They submit that there is a real doubt that the appellants will have the financial capacity to meet these costs, that over time their capacity to pay will diminish and that it is preferable and appropriate for the Court to bypass a potentially lengthy and expensive taxation process by making a lump sum costs award and release the security for costs that have been paid as security for the appeal. 4 The appellants submit that a lump sum order is not necessary. They submit that the respondents' solicitor's costs, and the costs incurred by the respondents in briefing two senior counsel in the proceedings are excessive and that the evidence of Ms Highfield indicates that costs in the amount of $286,160 are appropriate. The appellants submit that the respondents costs should proceed to taxation and that as the respondents have the benefit of a freezing order against the assets of Mr Klein (who is the third appellant) and an award of security for costs in the amount of $200,000, the respondents will be not prejudiced by any additional delay or expense arising from undergoing the usual taxation procedure. Further, the appellants record that they have filed an application for special leave to appeal from the decision of the Full Court (Coretell Pty Ltd v Australian Mud Company Pty Ltd [2017] FCAFC 54) and that if leave to appeal is granted, and the appeal allowed, then the cost orders in this Court will be reversed. 5 The evidence of Ms Ward indicates that by applying what she considers to be appropriate rates and charges for the costs of solicitors and counsel, the appropriate award of costs after taxation, allowing the 10% discount set out in the Full Court's orders of 3 April 2017, will be $385,000. Ms Highfield disagrees. She adopts a different methodology and arrives at a final figure of $286,160. 6 The most obvious substantive difference between these figures arises from the fact that the respondents briefed two senior counsel to appear at the hearing. The respondents make no downward adjustment to account for that fact, whereas the appellants discount the second senior counsel's fees by 100%. The use of two senior counsel is a legitimate basis for discounting the fees of the second senior counsel, although we do not consider that a total discount is appropriate in the present case, because it is apparent that some of the junior counsel's work may be attributed to the second senior counsel. Taking a broad brush approach, we would add back 50% of 90% of the second senior counsel's fees, or $48,400, to the amount proposed by Ms Highfield to arrive at a final figure of $334,560 as the total of the respondents' fees. 7 The evidence of Ms Ward includes her estimate that if the costs of the appeal were to go to taxation, the process would take over a year and cost the respondents in excess of $140,000. Ms Highfield disputes this estimate and contends that the costs of any taxation would be more in the order of $41,000 and take about 7 months to complete. 8 The total difference between the parties on the estimates as to the costs of the appeal itself is approximately $99,000. If Ms Ward's estimate of the cost of taxation is correct (and assuming that each party throws roughly the same costs at the taxation), the combined costs of taxation will be about $280,000. If Ms Highfield's estimate is accepted then the combined costs of the taxation will be about $82,000. On one metric the costs of the assessment process will easily eclipse the disputed amount between the parties, and on the other it will significantly overshadow that amount. 9 The considerations relevant to the award of lump sum costs are well known, and are set out in the Federal Court Costs Practice Note (GPN-COSTS) at sections 3 and 4 and Federal Court Rules 2011 (Cth) Div 40.2 and reflect the principles relevant to the efficient determination of proceedings set out in ss 37N, 37M and 43 of the Federal Court of Australia Act 1976 (Cth). We consider that this is a case where it is appropriate to make a lump-sum award of costs. The economics of proceeding to taxation are not just justified, and the evidence of the expert cost assessors is largely in agreement, although their methodologies differ. We do not consider that the fact that an application for special leave to appeal to the High Court has been filed warrants a conclusion that any costs award should proceed to taxation. Nor is the additional delay caused by taxation justified in the present case. 10 Accordingly, we assess the respondents' costs in the appeal, taking into account their entitlement to receive 90% of the costs of the appeal, to be $334,560. The appellants have indicated that in the event that we make such an order, they do not oppose the release of the security for costs held. Accordingly, we also order that the amount paid as security for costs pursuant to the orders of the Court made on 27 May 2016 be released to the respondents in partial satisfaction of the costs outstanding. 11 The evidence of Ms Ward includes her estimate of the reasonable costs of the present application for payment of lump sum costs being approximately $15,000, taking into account counsel fees, instructing solicitor fees and the costs of briefing herself. Each party has had partial success in the present application although ultimately the respondents have prevailed. We order costs of the present application in favour of the respondent in the amount of $11,000. I certify that the preceding eleven (11) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Jagot, Nicholas and Burley.